Goldman Sachs 2012 Annual Report Download - page 155

Notes to Consolidated Financial Statements
Securities Borrowed and Loaned Transactions
In a securities borrowed transaction, the firm borrows
securities from a counterparty in exchange for cash. When
the firm returns the securities, the counterparty returns the
cash. Interest is generally paid periodically over the life of
the transaction.
In a securities loaned transaction, the firm lends securities
to a counterparty typically in exchange for cash or
securities, or a letter of credit. When the counterparty
returns the securities, the firm returns the cash or securities
posted as collateral. Interest is generally paid periodically
over the life of the transaction.
The firm receives securities borrowed, makes delivery of
securities loaned, monitors the market value of these
securities on a daily basis, and delivers or obtains additional
collateral due to changes in the market value of the
securities, as appropriate. For securities borrowed
transactions, the firm typically requires collateral with a fair
value approximately equal to the carrying value of the
securities borrowed transaction.
Securities borrowed and loaned within Fixed Income,
Currency and Commodities Client Execution are recorded
at fair value under the fair value option. See Note 8 for
further information about securities borrowed and loaned
accounted for at fair value.
Securities borrowed and loaned within Securities Services
are recorded based on the amount of cash collateral
advanced or received plus accrued interest. As these
arrangements generally can be terminated on demand, they
exhibit little, if any, sensitivity to changes in interest rates.
Therefore, the carrying value of such arrangements
approximates fair value. While these arrangements are
carried at amounts that approximate fair value, they are not
accounted for at fair value under the fair value option or at
fair value in accordance with other U.S. GAAP and
therefore are not included in the firm’s fair value hierarchy
in Notes 6, 7 and 8. Had these arrangements been included
in the firm’s fair value hierarchy, they would have been
classified in level 2 as of December 2012.
As of December 2012 and December 2011, the firm had
$8.94 billion and $20.22 billion, respectively, of securities
received under resale agreements and securities borrowed
transactions that were segregated to satisfy certain
regulatory requirements. These securities are included in
“Cash and securities segregated for regulatory and
other purposes.”
Other Secured Financings
In addition to repurchase agreements and securities lending
transactions, the firm funds certain assets through the use of
other secured financings and pledges financial instruments
and other assets as collateral in these transactions. These
other secured financings consist of:
‰liabilities of consolidated VIEs;
‰transfers of assets accounted for as financings rather than
sales (primarily collateralized central bank financings,
pledged commodities, bank loans and mortgage whole
loans); and
‰other structured financing arrangements.
Other secured financings include arrangements that are
nonrecourse. As of December 2012 and December 2011,
nonrecourse other secured financings were $1.76 billion
and $3.14 billion, respectively.
The firm has elected to apply the fair value option to
substantially all other secured financings because the use of
fair value eliminates non-economic volatility in earnings
that would arise from using different measurement
attributes. See Note 8 for further information about other
secured financings that are accounted for at fair value.
Other secured financings that are not recorded at fair value
are recorded based on the amount of cash received plus
accrued interest, which generally approximates fair value.
While these financings are carried at amounts that
approximate fair value, they are not accounted for at fair
value under the fair value option or at fair value in
accordance with other U.S. GAAP and therefore are not
included in the firm’s fair value hierarchy in Notes 6, 7 and
8. Had these financings been included in the firm’s fair
value hierarchy, they would have primarily been classified
in level 3 as of December 2012.
Goldman Sachs 2012 Annual Report 153