Goldman Sachs 2013 Annual Report Download - page 194

Notes to Consolidated Financial Statements
The primary difference between the Standardized approach
and the Basel III Advanced approach is that the
Standardized approach utilizes prescribed risk-weightings
and does not contemplate the use of internal models to
compute exposure for credit risk on derivatives and
securities financing transactions, whereas the Basel III
Advanced approach permits the use of such models, subject
to supervisory approval. In addition, RWAs under the
Standardized approach depend largely on the type of
counterparty (e.g., whether the counterparty is a sovereign,
bank, broker-dealer or other entity), rather than on
assessments of each counterparty’s creditworthiness.
Furthermore, the Standardized approach does not include a
capital requirement for operational risk. RWAs for market
risk under both the Standardized and Basel III Advanced
approaches are based on the Federal Reserve Board’s
revised market risk regulatory capital requirements
described above.
Regulatory Leverage Ratios. The Revised Capital
Framework increased the minimum Tier 1 leverage ratio
applicable to the firm from 3% to 4% effective
January 1, 2014.
In addition, the Revised Capital Framework will introduce
a new Tier 1 supplementary leverage ratio (supplementary
leverage ratio) for Advanced approach banking
organizations, which compares Tier 1 capital (as defined
under the Revised Capital Framework) to a measure of
leverage exposure (defined as the sum of the firm’s assets
less certain CET1 deductions plus certain off-balance-sheet
exposures). Effective January 1, 2018, the minimum
supplementary leverage ratio requirement will be 3%;
however, disclosure will be required beginning in the first
quarter of 2015. While a definition of the leverage exposure
measure was set out in the Revised Capital Framework, this
measure and/or the minimum requirement applicable may
be amended by the regulatory authorities prior to the
January 2018 effective date.
Global Systemically Important Banking Institutions
(G-SIBs)
The Basel Committee has updated its methodology for
assessing the global systemic importance of banking
institutions and determining the range of additional CET1
that should be maintained by those deemed to be G-SIBs.
The required amount of additional CET1 for these
institutions will initially range from 1% to 2.5% and could
be higher in the future for a banking institution that
increases its systemic footprint (e.g., by increasing total
assets). In November 2013, the Financial Stability Board
(established at the direction of the leaders of the Group of
20) indicated that the firm, based on its 2012 financial data,
would be required to hold an additional 1.5% of CET1 as a
G-SIB. The final determination of the amount of additional
CET1 that the firm will be required to hold will initially be
based on the firm’s 2013 financial data and the manner and
timing of the U.S. banking regulators’ implementation of
the Basel Committee’s methodology. The Basel Committee
indicated that G-SIBs will be required to meet the capital
surcharges on a phased-in basis beginning in 2016
through 2019.
Bank Subsidiaries
GS Bank USA, an FDIC-insured, New York State-chartered
bank and a member of the Federal Reserve System, is
supervised and regulated by the Federal Reserve Board, the
FDIC, the New York State Department of Financial
Services and the Consumer Financial Protection Bureau,
and is subject to minimum capital requirements (described
below) that are calculated in a manner similar to those
applicable to bank holding companies. For purposes of
assessing the adequacy of its capital, GS Bank USA
computes its risk-based capital ratios in accordance with
the regulatory capital requirements applicable to state
member banks, which, as of December 2013, were based on
Basel I and also reflected the revised market risk regulatory
capital requirements as implemented by the Federal Reserve
Board. Beginning January 1, 2014, the Federal Reserve
Board implemented the Revised Capital Framework
discussed above.
192 Goldman Sachs 2013 Annual Report