Goldman Sachs 2012 Annual Report Download - page 63

Management’s Discussion and Analysis
Balance Sheet and Funding Sources
Balance Sheet Management
One of our most important risk management disciplines is
our ability to manage the size and composition of our
balance sheet. While our asset base changes due to client
activity, market fluctuations and business opportunities,
the size and composition of our balance sheet reflect (i) our
overall risk tolerance, (ii) our ability to access stable
funding sources and (iii) the amount of equity capital
we hold.
Although our balance sheet fluctuates on a day-to-day
basis, our total assets and adjusted assets at quarterly and
year-end dates are generally not materially different from
those occurring within our reporting periods.
In order to ensure appropriate risk management, we seek to
maintain a liquid balance sheet and have processes in place
to dynamically manage our assets and liabilities
which include:
‰quarterly planning;
‰business-specific limits;
‰monitoring of key metrics; and
‰scenario analyses.
Quarterly Planning. We prepare a quarterly balance sheet
plan that combines our projected total assets and
composition of assets with our expected funding sources
and capital levels for the upcoming quarter. The objectives
of this quarterly planning process are:
‰to develop our near-term balance sheet projections,
taking into account the general state of the financial
markets and expected business activity levels;
‰to ensure that our projected assets are supported by an
adequate amount and tenor of funding and that our
projected capital and liquidity metrics are within
management guidelines and regulatory requirements; and
‰to allow business risk managers and managers from our
independent control and support functions to objectively
evaluate balance sheet limit requests from business
managers in the context of the firm’s overall balance sheet
constraints. These constraints include the firm’s liability
profile and equity capital levels, maturities and plans for
new debt and equity issuances, share repurchases, deposit
trends and secured funding transactions.
To prepare our quarterly balance sheet plan, business risk
managers and managers from our independent control and
support functions meet with business managers to review
current and prior period metrics and discuss expectations
for the upcoming quarter. The specific metrics reviewed
include asset and liability size and composition, aged
inventory, limit utilization, risk and performance measures,
and capital usage.
Our consolidated quarterly plan, including our balance
sheet plans by business, funding and capital projections,
and projected capital and liquidity metrics, is reviewed by
the Firmwide Finance Committee. See “Overview and
Structure of Risk Management” for an overview of our risk
management structure.
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