Goldman Sachs 2012 Annual Report Download - page 85

Management’s Discussion and Analysis
Modeled Liquidity Outflow. Our Modeled Liquidity
Outflow is based on a scenario that includes both a
market-wide stress and a firm-specific stress, characterized
by the following qualitative elements:
‰Severely challenged market environments, including low
consumer and corporate confidence, financial and
political instability, adverse changes in market values,
including potential declines in equity markets and
widening of credit spreads.
‰A firm-specific crisis potentially triggered by material
losses, reputational damage, litigation, executive
departure, and/or a ratings downgrade.
The following are the critical modeling parameters of the
Modeled Liquidity Outflow:
‰Liquidity needs over a 30-day scenario.
‰A two-notch downgrade of the firm’s long-term senior
unsecured credit ratings.
‰A combination of contractual outflows, such as
upcoming maturities of unsecured debt, and contingent
outflows (e.g., actions though not contractually required,
we may deem necessary in a crisis). We assume that most
contingent outflows will occur within the initial days and
weeks of a crisis.
‰No issuance of equity or unsecured debt.
‰No support from government funding facilities. Although
we have access to various central bank funding programs,
we do not assume reliance on them as a source of funding
in a liquidity crisis.
‰Maintenance of our normal business levels. We do not
assume asset liquidation, other than the GCE.
The Modeled Liquidity Outflow is calculated and reported
to senior management on a daily basis. We regularly refine
our model to reflect changes in market or economic
conditions and the firm’s business mix.
The potential contractual and contingent cash and
collateral outflows covered in our Modeled Liquidity
Outflow include:
Unsecured Funding
‰Contractual: All upcoming maturities of unsecured
long-term debt, commercial paper, promissory notes and
other unsecured funding products. We assume that we
will be unable to issue new unsecured debt or rollover any
maturing debt.
‰Contingent: Repurchases of our outstanding long-term
debt, commercial paper and hybrid financial instruments
in the ordinary course of business as a market maker.
Deposits
‰Contractual: All upcoming maturities of term deposits.
We assume that we will be unable to raise new term
deposits or rollover any maturing term deposits.
‰Contingent: Withdrawals of bank deposits that have no
contractual maturity. The withdrawal assumptions
reflect, among other factors, the type of deposit, whether
the deposit is insured or uninsured, and the firm’s
relationship with the depositor.
Secured Funding
‰Contractual: A portion of upcoming contractual
maturities of secured funding due to either the inability to
refinance or the ability to refinance only at wider haircuts
(i.e., on terms which require us to post additional
collateral). Our assumptions reflect, among other factors,
the quality of the underlying collateral, counterparty roll
probabilities (our assessment of the counterparty’s
likelihood of continuing to provide funding on a secured
basis at the maturity of the trade) and
counterparty concentration.
‰Contingent: A decline in value of financial assets pledged
as collateral for financing transactions, which would
necessitate additional collateral postings under
those transactions.
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