macquarie.com.au  2014 Annual Financial Report  Macquarie Group Limited and its subsidiaries  Risk Management Report  continued  Downturn forward earnings capacity is estimated by the  Operating Groups and divisions with reference to a three  year downturn scenario provided to them by RMG. Aggregate risk can be therefore broken down into two  categories: meet their funding requirements as they fall due under a  range of market conditions. Liquidity management is performed centrally by Group  Treasury, with oversight from the Asset and Liability  Committee and RMG. MGL and MBL liquidity policies  are approved by the respective Boards after endorsement  by the Asset and Liability Committee and liquidity reporting is  provided to the MGL and MBL Boards on a monthly basis. The Asset and Liability Committee includes the CEO, MBL  CEO, CFO, CRO and Business Group Heads. RMG provides independent prudential oversight of liquidity  risk management, including the validation of liquidity scenario  assumptions, liquidity policies, and the required funding  maturity profile. Business risk is captured by the difference in base case and  downturn forward earnings estimates. Potential losses are  quantified using a version of the economic capital model.  A principal use of the Risk Appetite Test is in setting the  Equity Risk Limit (ERL). This limit constrains Macquarie’s  aggregate level of risk arising from principal equity positions,  managed fund holdings, property equity investments, lease  residuals and other equity investments. Any changes to the  ERL are sized to ensure that even under full utilisation of  this limit, and allowing for growth in other risk types, the  requirements of the Risk Appetite Test will be met.  MGL provides funding predominantly to the Non-Banking  Group. As such, the MGL LiquidityPolicyoutlines the  liquidity requirements for the Non-Banking Group. MGL's  risk appetite is set so that MGL is able to meet all of  its liquidity obligations during a period of liquidity stress: a 12  month period with no access to funding markets and with  only a limited impact on franchise businesses. Reflecting the longer term nature of the Non-Banking Group  asset profile, MGL is funded predominantly with a mixture of  capital and long-term wholesale funding. The two primary external funding vehicles for Macquarie  are MGL and MBL. MGL provides funding principally to  the Non-Banking Group and limited funding to some MBL  Group subsidiaries. MBL provides funding to the Banking  Group. The high level funding structure within Macquarie is shown  below. Macquarie’s liquidity risk management framework is  designed to ensure that both MGL and MBL are able to  The MBL LiquidityPolicyoutlines the liquidity requirements  for the Banking Group. MBL's risk appetite is set so that  MBL is able to meet all of its liquidity obligations during a  period of liquidity stress: a 12 month period of constrained  access to funding markets and with only a limited impact on  franchise businesses. MBL is funded mainly by capital, long-term liabilities and  deposits. Macquarie Group – high level funding structure Liquidity management Liquidity risk  Liquidity policy and principles GLYPH<150> business risk  – meaning decline in earnings through  deterioration in volumes and margins due to market  conditions GLYPH<150> potential losses  – including potential credit losses,  write-downs of equity investments, operational risk  losses and losses on trading positions. 34 