10. Upgrading risk management in preparation for Basel II

In Japan, following the Basel II Accord (final version) that was published in June 2004, a set of relevant standards and requirements were applied to the banking industry starting on March 31, 2007. Such regulations consisted of the three pillars of Basel II: minimum capital requirements, supervisory review, and market discipline.

SMBC developed appropriate systems in reference to the highest-level risk measurement framework among applicable options provided by Basel II. For this purpose, the bank refined internal credit grading systems introduced at the time of the merger, developing and implementing credit risk asset valuation programs, and introducing new operational risk monitoring systems. These were carried out mainly by the Credit Risk Committee, revising the General Rules for Credit Policy and a previous package of policies, rules and procedures concerning credit risk management, and establishing a new package of policies, rules and procedures concerning operational risk management.