historical simulation method). This internal SMBC model is evaluated  periodically by an independent auditing firm to assess its  appropriateness and accuracy. departments (back office) and the administrative departments  (middle office) conduct the checks. In addition, the Internal Audit  Unit of SMBC periodically performs comprehensive internal audits to  verify that the risk management framework is functioning properly. SMBC manages market risk by setting maximum limits for VaR and  maximum loss. These limits are set within the “risk capital limit”  which is determined taking into account the bank’s shareholders’  equity and other principal indicators of the bank’s financial position  and management resources.  Market risk can be divided into various factors: foreign exchange  rates, interest rates, equity prices and option risks. SMBC manages  each of these risk categories by employing the VaR method as well  as supplemental indicators suitable for managing the risk of each  risk factor, such as the BPV. Please note that, in the case of interest rate fluctuation risk, the  methods for recognizing the dates for maturity of demand depos- its (current accounts and ordinary deposit accounts that can be  withdrawn at any time) and the method for estimating the time of  cancellation prior to maturity of time deposits and consumer loans  differ substantially. At SMBC, the maturity of demand deposits  that are expected to be left with the bank for a prolonged period is  regarded to be five years (2.5 years on average). The cancellation  prior to maturity of time deposits and consumer loans is estimated  based on historical data. The results of VaR calculations for fiscal 2010 are shown in  the table below. SMBC’s internal VaR model makes use of  historical data to prepare scenarios for market fluctuations and,  by conducting simulations of gains and losses, the model esti- mates the maximum losses that may occur (this is known as the  A market operation for generating profit through management  of interest rates, terms, and other aspects of assets (loans,  bonds, etc.) and liabilities (deposits, etc.). A market operation for generating profit by taking advantage  of short-term fluctuations in market values and differences in  value among markets. The amount of change in assessed value as a result of a one  basis point (0.01%) movement in interest rates. The largest predicted loss that is possible given a fixed con- fidence interval. For example, VaR indicates, for a holding  period of one day and a confidence interval of 99.0%, the  maximum loss that may occur as a result of market fluctua- tions in one day with a probability of 1%. The relationship between the VaR calculated with the model and  the actual profit and loss data is back-tested daily. The back- testing results for SMBC’s trading accounts for fiscal 2010 are  shown at the top of the next page. A data point below the diagonal  line indicates a loss in excess of the predicted VaR for that day;  however, as in fiscal 2009, there were no such excess losses during  fiscal 2010. This demonstrates that the SMBC VaR model, with a  one-sided confidence interval of 99.0%, is sufficiently reliable. Note: VaR for a one-day holding period with a one-sided confidence interval of 99.0% [computed daily using the historical simulation  method (based on four years of historical observations)]. SMFG  2011 40 4. Banking  3. Trading  2. BPV (Basis point value)  (a) VaR Results ■ VaR Results Glossary (b) Back-Testing Results (1) Market Risk Management 3. Market and Liquidity Risk Management Methods 1. VaR (Value at risk)  (Billions of yen) June 2010 Sept. 2010 Dec. 2010 Mar. 2011 Trading Book Banking Book Maximum Minimum Average Trading Book Banking Book Trading Book SMFG (consolidated) SMBC (consolidated) SMBC (nonconsolidated) Banking Book 8.1 7.5 7.1 6.8 38.2 39.8 45.5 48.6 9.3 5.8 7.9 50.9 29.7 40.5 6.9 7.0 6.8 6.5 37.1 39.0 44.4 47.4 8.7 5.4 7.2 49.6 28.8 39.4 33.7 36.0 40.4 43.1 3.6 1.3 2.2 45.4 25.2 35.7 1.9 2.3 2.0 1.3