The liquidity risk appetite is supported by a number of risk tolerances and management principles Macquarie applies to oversee liquidity risk in both MGL and MBL: 

## Risk Tolerances 

GLYPH<150> term assets must be funded by term liabilities cash and liquid assets are sufficient to cover a 12 month stress scenario 

GLYPH<150> cash and liquid assets held to meet stress scenarios must be unencumbered liquid assets and cash 

GLYPH<150> short-term assets exceed short term wholesale liabilities diversity and stability of funding sources is a key priority 

GLYPH<150> balance sheet currency mismatches are managed within set tolerances 

GLYPH<150> funding and liquidity exposures between entities in the Macquarie Group are subject to constraints where required. 

## LiquidityManagement Principles 

GLYPH<150> Macquarie has a centralised approach to liquidity management 

GLYPH<150> liquidity risk is managed through stress scenario analysis and setting limits on the composition and maturity of assets and liabilities 

GLYPH<150> a Regional Liquidity Framework is maintained that outlines Macquarie's approach to managing funding and liquidity requirements in offshore subsidiaries and branches 

GLYPH<150> the liquidity position is managed to ensure all obligations can be met as required on an intraday basis 

GLYPH<150> a Liquidity Contingency Plan is maintained that provides an action plan in the event of a liquidity 'crisis' 

GLYPH<150> a funding strategy is prepared annually and monitored on a regular basis 

GLYPH<150> internal pricing allocates liquidity costs, benefits and risks to areas responsible for generating them 

GLYPH<150> strong relationships are maintained to assist with managing confidence and liquidity 

GLYPH<150> the MBL and MGL Boards and senior management receive regular reporting on Macquarie's liquidity position, including compliance with liquidity policy and regulatory requirements. 

## Scenario analysis 

Scenario analysis is central to Macquarie's liquidity risk management framework. Group Treasury models a number of liquidity scenarios covering both market wide and firm- specific crises. The objective of this modelling is to ensure the ability of MGL and MBL to meet all repayment obligations under each scenario and determine the capacity for asset growth. 

The scenarios separately consider the requirements of the Banking Group, Non-Banking Group and the Consolidated Entity. They are run over a number of timeframes and a range of conservative assumptions are used including access to capital markets, deposit outflows, contingent funding requirements and asset sales. 

## Liquid asset holdings 

Group Treasury maintains a portfolio of highly liquid unencumbered assets in both MGL and MBL to ensure adequate liquidity is available in all funding environments, including worst case wholesale and retail market conditions. The minimum liquid asset requirement is calculated from 

scenario projections and complies with regulatory minimum requirements. 

To determine the minimum level of liquid assets, reference is made to the expected minimum cash requirement during a combined market-wide and firm-specific crisis scenario over a 12 month timeframe. This scenario assumes no access to new funding sources, a significant loss of deposits and contingent funding outflows resulting from undrawn commitments, market moves impacting derivatives and other margined positions. The size of the liquid asset portfolio must exceed the minimum requirement as calculated in this model at all times. 

The liquid asset portfolio contains only unencumbered assets that can be relied on to maintain their liquidity in a crisis scenario. At least 90 per cent of the liquid asset portfolio held to meet the minimum liquid asset requirement must be eligible for repurchase with a central bank, either by Macquarie or other counterparties. The remainder must be approved by Group Treasury and RMG before inclusion in the liquid asset portfolio. As at 31 March 2014, 97 per cent of the liquid asset portfolio was eligible for repurchase with a central bank. 

The liquid asset portfolio typically includes unencumbered cash and central bank repo eligible government, semi- government, supranational, government guaranteed bank and unguaranteed bank securities and AAA rated Australian residential mortgage backed securities. In addition, the portfolio includes other very short dated, high quality liquid assets such as A-1+ rated Australian residential mortgage backed securities. 

The liquid asset portfolio is largely denominated and held in Australian dollars although liquid assets denominated in US dollars or other currencies are held where appropriate. 

## Liquidity contingency plan 

Group Treasury maintains a liquidity contingency plan. The liquidity contingency plan applies to the entire Macquarie Group and defines roles and responsibilities and actions to be taken in a liquidity event. This includes identification of key information requirements and appropriate communication plans with both internal and external parties. 

Specifically, the plan details factors that may constitute a crisis, the officer responsible for enacting the contingency management, a committee of senior executives who would be responsible for managing a crisis, the information required to effectively manage a crisis, a public relations strategy, a high level check list of possible actions to conserve or raise additional liquidity and contact lists to facilitate prompt communication with all key internal and external stakeholders. The liquidity contingency plan is subject to regular review (at least annually) by both Group Treasury and RMG and is submitted to the Board for approval. 

Macquarie is a global financial institution, with branches and subsidiaries in a variety of countries. Regulations in certain countries may require some branches or subsidiaries to have specific local contingency plans. Where that is the case, the liquidity contingency plan contains a supplement providing the specific information required for those branches or subsidiaries. 

