Goldman Sachs 2013 Annual Report Download - page 193

Notes to Consolidated Financial Statements
The table below presents information regarding Group
Inc.’s regulatory capital ratios and Tier 1 leverage ratio
under Basel I, as implemented by the Federal Reserve
Board. The information as of December 2013 reflects the
revised market risk regulatory capital requirements. These
changes resulted in increased regulatory capital
requirements for market risk. The information as of
December 2012 is prior to the implementation of these
revised market risk regulatory capital requirements.
As of December
$ in millions 2013 2012
Tier 1 capital $ 72,471 $ 66,977
Tier 2 capital $ 13,632 $ 13,429
Total capital $ 86,103 $ 80,406
Risk-weighted assets $433,226 $399,928
Tier 1 capital ratio 16.7% 16.7%
Total capital ratio 19.9% 20.1%
Tier 1 leverage ratio 8.1% 7.3%
Revised Capital Framework
The U.S. federal bank regulatory agencies (Agencies) have
approved revised risk-based capital and leverage ratio
regulations establishing a new comprehensive capital
framework for U.S. banking organizations (Revised Capital
Framework). These regulations are largely based on the
Basel Committee’s December 2010 final capital framework
for strengthening international capital standards (Basel III)
and also implement certain provisions of the
Dodd-Frank Act.
Under the Revised Capital Framework, Group Inc. is an
“Advanced approach” banking organization. Below are the
aspects of the rules that are most relevant to the firm, as an
Advanced approach banking organization.
Definition of Capital and Capital Ratios. The Revised
Capital Framework introduced changes to the definition of
regulatory capital, which, subject to transitional provisions,
became effective across the firm’s regulatory capital and
leverage ratios on January 1, 2014. These changes include
the introduction of a new capital measure called Common
Equity Tier 1 (CET1), and the related regulatory capital
ratio of CET1 to RWAs (CET1 ratio). In addition, the
definition of Tier 1 capital has been narrowed to include
only CET1 and instruments such as perpetual non-
cumulative preferred stock, which meet certain criteria.
Certain aspects of the revised requirements phase in over
time. These include increases in the minimum capital ratio
requirements and the introduction of new capital buffers
and certain deductions from regulatory capital (such as
investments in nonconsolidated financial institutions). In
addition, junior subordinated debt issued to trusts is being
phased out of regulatory capital.
The minimum CET1 ratio is 4.0% as of January 1, 2014
and will increase to 4.5% on January 1, 2015. The
minimum Tier 1 capital ratio increased from 4.0% to 5.5%
on January 1, 2014 and will increase to 6.0% beginning
January 1, 2015. The minimum Total capital ratio remains
unchanged at 8.0%. These minimum ratios will be
supplemented by a new capital conservation buffer that
phases in, beginning January 1, 2016, in increments of
0.625% per year until it reaches 2.5% on January 1, 2019.
The Revised Capital Framework also introduces a new
counter-cyclical capital buffer, to be imposed in the event
that national supervisors deem it necessary in order to
counteract excessive credit growth.
Risk-Weighted Assets. In February 2014, the Federal
Reserve Board informed us that we have completed a
satisfactory “parallel run,” as required of Advanced
approach banking organizations under the Revised
Capital Framework, and therefore changes to RWAs will
take effect beginning with the second quarter of 2014.
Accordingly, the calculation of RWAs in future quarters
will be based on the following methodologies:
‰During the first quarter of 2014 — the Basel I risk-based
capital framework adjusted for certain items related to
existing capital deductions and the phase-in of new
capital deductions (Basel I Adjusted);
‰During the remaining quarters of 2014 — the higher of
RWAs computed under the Basel III Advanced approach
or the Basel I Adjusted calculation; and
‰Beginning in the first quarter of 2015 — the higher of
RWAs computed under the Basel III Advanced or
Standardized approach.
Goldman Sachs 2013 Annual Report 191