Daiwa Securities Group Annual Report 2012 (b) Financial assets and liabilities held by the subsidiary that  engages in the banking business The subsidiary that engages in the banking business regards  the financial value changes as the market risk for its financial  assets and liabilities, and utilizes it for the quantitative analysis  when managing the interest rate risk. The financial value changes  are derived from 99 percentile figure of the interest rate volatility  measured with a holding period of one year and observation  period of five years. Calculating the financial value changes, the financial assets  and liabilities are categorized according to the interest due date  and interest rate volatility is used for each term. At the end of the  fiscal year, presuming that all the risk factors except interest  rates are unchanged, the financial value derived from the 99th  percentile figure will be decreased by 4.1 billion yen ($51 million). The financial value changes suppose that the risk factors  except interest rates are unchanged, and it is not considered to  be a correlation between the interest rates and other risk fac- tors. Therefore it is possible that the actual impact may exceed  the calculated amount in the case that the interest rates fluctua- tion is not within the reasonably estimated range. Methods of raising capital of Daiwa include unsecured fund- raising such as corporate bonds, medium-term notes, borrow- ing from financial institutions, commercial paper, call money,  and deposits, etc. and secured fundraising such as Gensaki  transactions and repurchase agreements, etc. By those meth- ods, Daiwa realizes effective and stable raising of capital. In terms of financial stability, preparing for the case that the  environment vastly changes, Daiwa endeavors in ordinary times  to secure a stable reserve to prevent the business from suffer- ing trouble. Especially in recent years, Daiwa has increased  liquidity by raising capital raising from the market and borrowing  from financial institutions, preparing for the world wide financial  crisis and credit crunch. Also, Daiwa tries to diversify the maturity of raised capital and  sources of funding preparing for the event that it becomes  difficult to raise new capital and to reschedule the existing  raising of capital due to a financial crisis occurring. Further, Daiwa has established a liquidity management  system in accordance with liquidity coverage ratio suggested by  Basel Committee on Banking Supervision. That means that  Daiwa daily monitors if the liquidity portfolio, which should cover  financing proceeds without collateral that has a maturity date  The fair value of financial instruments includes the price based  on market value and the theoretical price reasonably calculated  in the case of no market value. They may be changed with  different conditions because a certain condition is applied to  calculating theoretical prices. The Company periodically monitors the maintenance of its  subsidiaries’ contingency plans. The Company revises, if neces- sary, the capital raising plan or contingency plan itself with crisis  scenarios assumed and tries to preliminarily execute counter- measures, both increasing the liquidity and reducing assets at  the same time. Moreover, Daiwa Securities, Daiwa Securities CM, Daiwa  Next Bank, Ltd. and foreign securities subsidiaries, which are  sensitive to influence by financial markets and for which the  importance to secure liquidity of the capital is significant, each  decide their own contingency plans and are periodically revising  their plans as well. The contingency plan of Daiwa was established considering  the stress that the entire group may face and is periodically  revised to quickly respond to changing financial environments. Daiwa has also established a contingency plan as one of the  measures of dealing with liquidity risk. This plan states basic  policy concerning the report lines depending upon the urgency  of stress internally originated including a credit crunch, and  externally originated including an abrupt change of market  environment, and the method of raising capital. The contin- gency plan enables Daiwa to prepare a system for securing  liquidity through a swift response. The Company collectively manages and monitors the liquidity  of Daiwa under the basic policy to secure the appropriate liquid- ity of Daiwa as a whole. The Company always monitors whether  the liquidity portfolio is sufficiently secured against short-term  raised capital without collateral preparing for the case that it  becomes difficult to raise new capital and to reschedule the  existing raising of capital due to the occurrence of some stress  which is specific to the Company or influences the entire  market. Also, Daiwa has established a system that enables the  Company to flexibly supply capital to the group companies if  necessary, and achieves efficient and unified raising of capital  and capital management. That enables Daiwa to raise and  manage capital integrally. within a certain period as well as the estimated cash outflow  caused by realization of one of some stress scenarios prepared  in advance during the same period, is maintained or not. Daiwa  has established a system that enables Daiwa to continue the  business even if Daiwa cannot raise funds for a year or so. (iv) Supplementary explanation for the fair values of financial  instruments (iii) Management of liquidity risk concerning raising capital Daiwa conducts its business with a core focus on the securities  related business, utilizing a lot of assets and liabilities and  establishes the basic policy which clarifies to efficiently secure  enough liquidity for continuing its business. 73