SMFG Notes to Consolidated Financial Statements 30. Financial Instruments SMFG  2011 98 The Credit & Investment Planning Department  of the Risk Management Unit is responsible for the  comprehensive management of credit risk. This depart- ment establishes, revises or abolishes credit policies,  the internal rating system, credit authority regulations,  credit application regulations, and manages non- performing loans and other aspects of credit portfolio  management. The department also controls SMBC’s  total credit risk by quantifying credit risk (i.e. calculat- ing risk capital and risk-weighted assets) in cooperation  with the Corporate Risk Management Department.  The department also monitors risk situations and  regularly reports to the Management Committee and  the Board of Directors. Financial liabilities of SMFG include borrowed money  and bonds, etc. in addition to deposits. Deposits mainly  comprise deposits of domestic and foreign companies  and domestic individuals. Borrowed money and bonds  include subordinated borrowings and subordinated  bonds. Also, financial liabilities, like financial assets,  expose SMFG to not only market risk but also funding  liquidity risk: the risk of SMFG not being able to  raise funds due to market turmoil, deterioration in  its creditworthiness or other factors. These risks are  properly monitored and managed based on “(c) Risk  management framework for financial instruments”  below. SMFG conducts integrated management of credit risk  according to its operational characteristics, and the  credit risk inherent in its entire portfolio as well as the  risk in individual credits are managed quantitatively  and continuously. SMFG conducts banking and other financial services such  as securities, leasing, credit card, invest banking, consumer  finance, and venture capital. Its banking business includes  deposit taking, lending, securities trading, securities  investment, domestic and foreign exchange transactions,  brokerage, etc. of financial futures transactions, etc., cor- porate bond trust services, trust business, sale of securities  investment trusts, sale of insurance products, and securities  intermediary services. Derivatives handled by SMFG include foreign exchange  futures; futures, forwards, swaps and options related to  interest rates, currencies, equities, bonds and commodi- ties; and credit and weather derivatives. Major risks associated with derivatives include  market risk, liquidity risk, and credit risk arising  from nonperformance of contractual obligations due to  deterioration in the counterparty’s financial conditions.  These risks are properly monitored and managed based  on “(c) Risk management framework for financial  instruments” below. Hedge accounting is applied to derivative transac- tions executed for ALM purposes, as necessary. Hedging  instruments, hedged items, hedging policy and the  method to assess the effectiveness of hedging are  described in Note 2. (17) Hedge accounting. The fundamental matters on risk management for  SMFG are set forth in “Risk Management Regulations.”  SMFG’s Management Committee establishes the basic  risk management policy, based on the Regulations, which  is then approved by the Board of Directors. SMFG has a  risk management system based on the basic policy. The  Corporate Risk Management Department, which, together  with the Corporate Planning Department, controls risk  management across SMFG by monitoring the development  and implementation of SMFG’s risk management system,  and gives appropriate guidance as needed. Under this  framework, SMFG comprehensively and systematically  manages risks. At SMBC, basic policies on credit risk management  and other significant matters require the resolution of  the Management Committee and the approval of the  Board of Directors. The main financial assets held by SMFG include loans  to foreign and domestic companies and domestic  individuals, and securities such as bonds (government  and corporate bonds) and stocks (foreign and domestic  stocks), etc. Bonds such as government bonds are held  for both trading and ALM purposes, and certain bonds  are held as held-to-maturity securities. Stocks are held  mainly for strategic purposes. These assets expose  SMFG to credit risk, market risk and liquidity risk.  Credit risk is the risk of loss arising from nonperfor- mance of obligations by the borrower or issuer due to  factors such as deterioration in the borrower’s/issuer’s  financial conditions. Market risk is the risk stemming  from fluctuations in interest rates, exchange rates, or  share prices. Liquidity risk is the risk arising from  difficulty executing transactions in desired quantities  at appropriate prices due to low market liquidity. These  risks are properly monitored and managed based on  “(c) Risk management framework for financial instru- ments” below. These services entail holding of financial assets such as  loans and bills discounted, bonds, and stocks. Meanwhile,  SMFG raises funds through deposit taking, borrowing,  bond offering, etc. Furthermore, it undertakes derivative  transactions to meet customers’ hedging needs, to control  market risk associated with deposit taking and lending  (“ALM purposes”), and to make profit on short-term  fluctuations in interest rates, foreign exchange rates, etc.  (“trading purposes”). (b) Details of financial instruments and associated risks (i) Financial assets (c) Risk management framework for financial instruments (ii) Financial liabilities i. Credit risk management system (i) Management of credit risk (iii) Derivative transactions (a) Policies on financial instruments (1) Status of financial instruments