Goldman Sachs 2013 Annual Report Download - page 69

Management’s Discussion and Analysis
Our Tier 1 capital ratio was 16.7%, unchanged compared
with December 2012 primarily reflecting an increase in
RWAs, offset by an increase in Tier 1 capital. The increase
in RWAs was primarily driven by the implementation of the
revised market risk regulatory capital requirements. These
requirements are a significant part of the regulatory capital
changes that will ultimately be reflected in our Basel III
capital ratios.
The table below presents the changes in Tier 1 common
capital, Tier 1 capital and Tier 2 capital during 2013
and 2012.
Year Ended
in millions
December
2013
December
2012
Tier 1 Common Capital
Balance, beginning of period $58,047 $55,162
Increase in common shareholders’ equity 1,751 2,237
(Increase)/decrease in goodwill (3) 100
Decrease in identifiable intangible assets 726 269
(Increase)/decrease in equity investments
in certain entities 1,491 (249)
(Increase)/decrease in disallowed deferred
tax assets 763 (188)
Change in debt valuation adjustment 190 484
Change in other adjustments 283 232
Balance, end of period $63,248 $58,047
Tier 1 Capital
Balance, beginning of period $66,977 $63,262
Net increase in Tier 1 common capital 5,201 2,885
Increase in perpetual non-cumulative
preferred stock 1,000 3,100
Change in junior subordinated debt issued
to trusts —(2,250)
Redesignation of junior subordinated debt
issued to trusts (687) —
Change in other adjustments (20) (20)
Balance, end of period 72,471 66,977
Tier 2 Capital
Balance, beginning of period 13,429 13,881
Decrease in qualifying subordinated debt (569) (486)
Redesignation of junior subordinated debt
issued to trusts 687 —
Change in other adjustments 85 34
Balance, end of period 13,632 13,429
Total Capital $86,103 $80,406
See “Business — Regulation” in Part I, Item 1 of the 2013
Form 10-K and Note 20 to the consolidated financial
statements for additional information about our regulatory
capital ratios and related regulatory requirements,
including pending and proposed regulatory changes.
Risk-Weighted Assets
RWAs under the Federal Reserve Board’s risk-based capital
requirements are calculated based on measures of credit
risk and market risk.
RWAs for credit risk reflect amounts for on-balance-sheet
and off-balance-sheet exposures. Credit risk requirements
for on-balance-sheet assets, such as receivables and cash,
are generally based on the balance sheet value. Credit risk
requirements for securities financing transactions are
determined based upon the positive net exposure for each
trade, and include the effect of counterparty netting and
collateral, as applicable. For off-balance-sheet exposures,
including commitments and guarantees, a credit equivalent
amount is calculated based on the notional amount of each
trade. Requirements for OTC derivatives are based on a
combination of positive net exposure and a percentage of
the notional amount of each trade, and include the effect of
counterparty netting and collateral, as applicable. All such
assets and exposures are then assigned a risk weight
depending on, among other things, whether the
counterparty is a sovereign, bank or a qualifying securities
firm or other entity (or if collateral is held, depending on the
nature of the collateral).
As of December 2012, RWAs for market risk were
determined by reference to the firm’s Value-at-Risk (VaR)
model, supplemented by the standardized measurement
method used to determine RWAs for specific risk for
certain positions. Under the Federal Reserve Board’s revised
market risk regulatory capital requirements, which became
effective on January 1, 2013, the methodology for
calculating RWAs for market risk was changed. RWAs for
market risk are determined using VaR, stressed VaR,
incremental risk, comprehensive risk and a standardized
measurement method for specific risk.
Goldman Sachs 2013 Annual Report 67