Goldman Sachs 2001 Annual Report Download - page 41

page 39 GOLDMAN SACHS ANNUAL REPORT 2001
Management Committee–All risk control functions ultimately
report to the Management Committee. Through both direct and
delegated authority, the Management Committee approves all of
Goldman Sachs’ operating activities, trading risk parameters and
customer review guidelines.
Risk Committees–The Firmwide Risk Committee:
• reviews the activities of existing businesses;
• approves new businesses and products;
• approves divisional market risk limits and reviews business
unit market risk limits;
• approves inventory position limits for selected country
exposures and business units;
• approves sovereign credit risk limits and credit risk limits
by ratings group; and
• reviews scenario analyses based on abnormal or “catastrophic”
market movements.
The FICC and Equities Risk Committees set market risk limits
for their respective product lines based on a number of measures
including Value at Risk (VaR), scenario analyses and inventory
levels. The Asset Management Control Oversight and the Asset
Management Risk Committees oversee various operational,
credit, pricing and business practice issues.
Global Compliance and Control Committee–The Global
Compliance and Control Committee provides oversight of our
compliance and control functions, including internal audit, and
reviews our legal, reputational, operational and control risks.
Commitments Committee–The Commitments Committee
approves equity and non-investment-grade debt underwriting
commitments, loans extended by Goldman Sachs, and unusual
financing structures and transactions that involve significant cap-
ital exposure. The Commitments Committee has delegated to the
Credit Department the authority to approve underwriting com-
mitments for investment-grade debt and certain other products.
Credit Policy Committee–The Credit Policy Committee estab-
lishes and reviews broad credit policies and parameters that are
implemented by the Credit Department.
Operational Risk Committee–The Operational Risk Committee
provides oversight of the ongoing development and implementa-
tion of our operational risk policies, framework and methodolo-
gies and monitors the effectiveness of operational risk
management.
Finance Committee–The Finance Committee is responsible
for oversight of our capital, liquidity and funding needs and for
setting certain inventory position limits.
Segregation of duties and management oversight are fundamen-
tal elements of our risk management process. In addition to
the committees described above, departments that are indepen-
dent of the revenue-producing units, such as the Firmwide Risk,
Credit, Controllers, Global Operations, Compliance, Manage-
ment Controls and Legal departments, in part perform risk man-
agement functions, which include monitoring, analyzing and
evaluating risk. Furthermore, the Controllers Department, in
conjunction with the Firmwide Risk Department, independently
reviews, on a regular basis, internal valuation models and the
pricing of positions determined by individual business units.
Risk Limits
Business unit risk limits are established by the various risk com-
mittees and may be further allocated by the business unit man-
agers to individual trading desks.
Market risk limits are monitored on a daily basis by the Firmwide
Risk Department, and are reviewed regularly by the appropriate
risk committee. Limit violations are reported to the appropriate
risk committee and the appropriate business unit managers.
Inventory position limits are monitored by the Controllers
Department and position limit violations are reported to the
appropriate business unit managers, the Finance Committee and
the appropriate risk committee.
Market Risk
The potential for changes in the market value of our trading
positions is referred to as “market risk.” Our trading positions
result from underwriting, market-making, specialist and propri-
etary trading activities.