Notes to Consolidated Financial Statements SMFG Department, which is independent from the business  units that directly handle business transactions,  manages market and liquidity risks in an integrated  manner. The department also monitors market and  liquidity risk situations and regularly reports to the  Management Committee and the Board of Directors. Furthermore, SMBC’s cross-departmental “ALM  Committee” reports on the state of observance of  market risk capital and liquidity risk capital limits, and  deliberates on administration of ALM policies. SMBC  also has a system whereby front-office departments,  middle-office departments and back-office departments  check each other’s work in order to prevent clerical  errors, unauthorized transactions, etc.  In addition, SMBC’s Internal Audit Unit, which  is independent from other departments, periodically  performs comprehensive internal audits to verify that  the risk management framework is properly function- ing and reports the audit results to the Management  Committee, the Board of Directors and other concerned  committees and departments. SMBC manages market risk by setting maximum loss  and VaR (value at risk: maximum potential loss for a  given probability) within the risk capital limit that is  set taking into account stockholders’ equity and other  factors and in accordance with the market transaction  policies.  SMBC uses the historical simulation method (a  method for estimating the maximum loss by running  simulations of changes in profit and loss on market  fluctuation scenarios based on historical data) to  measure VaR and, based on 4 years of historical  observation, calculates the maximum loss that may  occur as a result of market fluctuations in 1 day with a  probability of 1%. Regarding risks associated with foreign exchange  rates, interest rates, equity risk, option prices and  other market risk factors, SMBC manages such risks by  setting a maximum limit on the indicator suited for  each market risk factor such as BPV (basis point value:  denotes the change in value of a financial instrument  resulting from a 0.01 percentage-point change in the  yield). Moreover, to manage the liquidity risk of marketable  instruments, derivative transactions, etc., SMBC has  trading limits for each business office classified by  currency, instrument, transaction period, etc. As for  financial futures, etc., risks are managed by restricting  positions within a certain percentage of open interest in  the entire market. At SMBC, funding liquidity risk is managed based on  a framework consisting of setting funding gap limits  and guidelines, maintaining a system of highly liquid  supplementary funding sources, and establishing con- tingency plans. SMBC tries to avoid excessive reliance  on short-term funds by managing funding gap limits  and guidelines and has established a contingency plan  covering emergency action plans such as reducing fund- ing gap limits and guidelines. In addition, to ensure  smooth fulfillment of transactions in face of market  turmoil, SMBC holds assets such as U.S. treasuries that  can be sold immediately and emergency committed  lines as supplemental liquidity. However, it should be noted that these figures are  statistical figures that change according to changes in  the assumptions and the calculation methods, and may  not cover the risk of future market conditions fluctuat- ing drastically compared to market fluctuations of the  past. As of March 31, 2011, total VaR of SMBC and other  major consolidated subsidiaries was ¥48.6 billion in  the banking book (market operations for generating  profit through management of interest rates, terms,  and other aspects of assets (loans, bonds, etc.) and  liabilities (deposits, etc.)), ¥6.8 billion in the trading  book (market operations for generating profit by taking  advantage of short-term fluctuations in market values  and differences in value among markets) and ¥114.1  billion in the holding of shares (listed shares) for the  purpose of strategic investment. Fair values of financial instruments are based on their  market prices and, in cases where market prices are not  available, reasonably calculated prices. Such prices have  been calculated using certain assumptions, and may differ  if calculated based on different assumptions. SMFG  2011 100 — Quantitative information on market risks ii. Market and liquidity risk management methodology — Market risk management — Liquidity risk management (d) Supplementary explanations about matters concerning fair  value of financial instruments