Goldman Sachs 2013 Annual Report Download - page 72

Management’s Discussion and Analysis
The table below presents a reconciliation of our common
shareholders’ equity to the estimated Basel III Advanced
CET1 on a fully phased-in basis.
$ in millions
As of
December
2013
Common shareholders’ equity $ 71,267
Goodwill (3,705)
Identifiable intangible assets (671)
Deferred tax liabilities 908
Goodwill and identifiable intangible assets, net of
deferred tax liabilities (3,468)
Deductions for investments in nonconsolidated
financial institutions 1(9,091)
Other adjustments 2(489)
Basel III CET1 $ 58,219
Basel III Advanced RWAs $594,662
Basel III Advanced CET1 Ratio 9.8%
1. This deduction, which represents the fully phased-in requirement, is the
amount by which our investments in the capital of nonconsolidated financial
institutions exceed certain prescribed thresholds. During both the transitional
period and thereafter, no deduction will be required if the applicable
proportion of our investments in the capital of nonconsolidated financial
institutions falls below the prescribed thresholds.
2. Principally includes credit valuation adjustments on derivative liabilities and
debt valuation adjustments, as well as other required credit risk-
based deductions.
In addition, beginning with the first quarter of 2015,
subject to transitional provisions, we will also be required
to disclose ratios calculated under the Standardized
approach. Our estimated CET1 ratio under the
Standardized approach (Standardized CET1 ratio) on a
fully phased-in basis was approximately 60 basis points
lower than our estimated Basel III Advanced CET1 ratio in
the table above.
Both the Basel III Advanced CET1 ratio and the
Standardized CET1 ratio are subject to transitional
provisions. Reflecting the transitional provisions that
became effective January 1, 2014, our estimated Basel III
Advanced CET1 ratio and our estimated Standardized
CET1 ratio are approximately 150 basis points higher than
the respective CET1 ratios on a fully phased-in basis as of
December 2013.
Effective January 1, 2014, Group Inc.’s capital and leverage
ratios are calculated under, and subject to the minimums as
defined in, the Revised Capital Framework. The changes to
the definition of capital and minimum ratios, subject to
transitional provisions, were effective beginning
January 1, 2014. RWAs are based on Basel I Adjusted, as
defined in Note 20 to the consolidated financial statements.
The firm will transition to Basel III beginning on
April 1, 2014. Including the impact of the changes to the
definition of regulatory capital and reflecting the
transitional provisions effective in 2014, our estimated
CET1 ratio (CET1 to RWAs on a Basel I Adjusted basis) as
of December 2013 would have been essentially unchanged
as compared to our Tier 1 common ratio under Basel I.
Regulatory Leverage Ratios. The Revised Capital
Framework increased the minimum Tier 1 leverage ratio
applicable to us 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. The supplementary leverage ratio 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, including a
measure of derivatives exposures and commitments. The
Revised Capital Framework requires a minimum
supplementary leverage ratio of 3%, effective
January 1, 2018, but with disclosure required beginning in
the first quarter of 2015. In addition, subsequent to the
approval of the Revised Capital Framework, the Agencies
issued a proposal to increase the minimum supplementary
leverage ratio requirement for the largest U.S. banks (those
deemed to be global systemically important banking
institutions (G-SIBs) under the Basel G-SIB framework).
These proposals would require the firm and other G-SIBs to
meet a 5% supplementary leverage ratio (comprised of the
minimum requirement of 3% plus a 2% buffer). As of
December 2013, our estimated supplementary leverage
ratio based on the Revised Capital Framework
approximates this proposed minimum.
In addition, the Basel Committee recently finalized
revisions that would increase the size of the leverage
exposure for purposes of the supplementary leverage ratio,
but would retain a minimum supplementary leverage ratio
requirement of 3%. It is not known with certainty at this
point whether the U.S. regulators will adopt this revised
definition of leverage into their rules and proposals for the
supplementary leverage ratio.
70 Goldman Sachs 2013 Annual Report