Goldman Sachs 2012 Annual Report Download - page 86

Management’s Discussion and Analysis
OTC Derivatives
‰Contingent: Collateral postings to counterparties due to
adverse changes in the value of our OTC derivatives.
‰Contingent: Other outflows of cash or collateral related
to OTC derivatives, including the impact of trade
terminations, collateral substitutions, collateral disputes,
collateral calls or termination payments required by a
two-notch downgrade in our credit ratings, and collateral
that has not been called by counterparties, but is available
to them.
Exchange-Traded Derivatives
‰Contingent: Variation margin postings required due to
adverse changes in the value of our outstanding
exchange-traded derivatives.
‰Contingent: An increase in initial margin and guaranty
fund requirements by derivative clearing houses.
Customer Cash and Securities
‰Contingent: Liquidity outflows associated with our prime
brokerage business, including withdrawals of customer
credit balances, and a reduction in customer short
positions, which serve as a funding source for
long positions.
Unfunded Commitments
‰Contingent: Draws on our unfunded commitments. Draw
assumptions reflect, among other things, the type of
commitment and counterparty.
Other
‰Other upcoming large cash outflows, such as
tax payments.
Asset-Liability Management
Our liquidity risk management policies are designed to
ensure we have a sufficient amount of financing, even when
funding markets experience persistent stress. We seek to
maintain a long-dated and diversified funding profile,
taking into consideration the characteristics and liquidity
profile of our assets.
Our approach to asset-liability management includes:
‰Conservatively managing the overall characteristics of
our funding book, with a focus on maintaining long-term,
diversified sources of funding in excess of our current
requirements. See “Balance Sheet and Funding Sources —
Funding Sources” for additional details.
‰Actively managing and monitoring our asset base, with
particular focus on the liquidity, holding period and our
ability to fund assets on a secured basis. This enables us to
determine the most appropriate funding products and
tenors. See “Balance Sheet and Funding Sources —
Balance Sheet Management” for more detail on our
balance sheet management process and “— Funding
Sources — Secured Funding” for more detail on asset
classes that may be harder to fund on a secured basis.
‰Raising secured and unsecured financing that has a long
tenor relative to the liquidity profile of our assets. This
reduces the risk that our liabilities will come due in
advance of our ability to generate liquidity from the sale
of our assets. Because we maintain a highly liquid balance
sheet, the holding period of certain of our assets may be
materially shorter than their contractual maturity dates.
Our goal is to ensure that the firm maintains sufficient
liquidity to fund its assets and meet its contractual and
contingent obligations in normal times as well as during
periods of market stress. Through our dynamic balance
sheet management process (see “Balance Sheet and Funding
Sources — Balance Sheet Management”), we use actual and
projected asset balances to determine secured and
unsecured funding requirements. Funding plans are
reviewed and approved by the Firmwide Finance
Committee on a quarterly basis. In addition, senior
managers in our independent control and support functions
regularly analyze, and the Firmwide Finance Committee
reviews, our consolidated total capital position (unsecured
long-term borrowings plus total shareholders’ equity) so
that we maintain a level of long-term funding that is
sufficient to meet our long-term financing requirements. In
a liquidity crisis, we would first use our GCE in order to
avoid reliance on asset sales (other than our GCE).
However, we recognize that orderly asset sales may be
prudent or necessary in a severe or persistent liquidity crisis.
84 Goldman Sachs 2012 Annual Report