Goldman Sachs 2013 Annual Report Download - page 64

Management’s Discussion and Analysis
Funding Sources
Our primary sources of funding are secured financings,
unsecured long-term and short-term borrowings, and
deposits. We seek to maintain broad and diversified
funding sources globally across products, programs,
markets, currencies and creditors to avoid
funding concentrations.
We raise funding through a number of different
products, including:
‰collateralized financings, such as repurchase agreements,
securities loaned and other secured financings;
‰long-term unsecured debt (including structured notes)
through syndicated U.S. registered offerings, U.S.
registered and Rule 144A medium-term note programs,
offshore medium-term note offerings and other
debt offerings;
‰savings and demand deposits through deposit sweep
programs and time deposits through internal and third-
party broker-dealers; and
‰short-term unsecured debt through U.S. and non-U.S.
hybrid financial instruments, commercial paper and
promissory note issuances and other methods.
Our funding is primarily raised in U.S. dollar, Euro, British
pound and Japanese yen. We generally distribute our
funding products through our own sales force and third-
party distributors to a large, diverse creditor base in a
variety of markets in the Americas, Europe and Asia. We
believe that our relationships with our creditors are critical
to our liquidity. Our creditors include banks, governments,
securities lenders, pension funds, insurance companies,
mutual funds and individuals. We have imposed various
internal guidelines to monitor creditor concentration across
our funding programs.
Secured Funding. We fund a significant amount of
inventory on a secured basis. Secured funding is less
sensitive to changes in our credit quality than unsecured
funding, due to our posting of collateral to our lenders.
Nonetheless, we continually analyze the refinancing risk of
our secured funding activities, taking into account trade
tenors, maturity profiles, counterparty concentrations,
collateral eligibility and counterparty rollover probabilities.
We seek to mitigate our refinancing risk by executing term
trades with staggered maturities, diversifying
counterparties, raising excess secured funding, and pre-
funding residual risk through our GCE.
We seek to raise secured funding with a term appropriate
for the liquidity of the assets that are being financed, and we
seek longer maturities for secured funding collateralized by
asset classes that may be harder to fund on a secured basis
especially during times of market stress. Substantially all of
our secured funding, excluding funding collateralized by
liquid government obligations, is executed for tenors of one
month or greater. Assets that may be harder to fund on a
secured basis during times of market stress include certain
financial instruments in the following categories: mortgage
and other asset-backed loans and securities, non-investment
grade corporate debt securities, equities and convertible
debentures and emerging market securities. Assets that are
classified as level 3 in the fair value hierarchy are generally
funded on an unsecured basis. See Notes 5 and 6 to the
consolidated financial statements for further information
about the classification of financial instruments in the fair
value hierarchy and “— Unsecured Long-Term
Borrowings” below for further information about the use
of unsecured long-term borrowings as a source of funding.
62 Goldman Sachs 2013 Annual Report