Goldman Sachs 2013 Annual Report Download - page 85

Management’s Discussion and Analysis
Liquidity Risk Management
Liquidity is of critical importance to financial institutions.
Most of the failures of financial institutions have occurred
in large part due to insufficient liquidity. Accordingly, the
firm has in place a comprehensive and conservative set of
liquidity and funding policies to address both firm-specific
and broader industry or market liquidity events. Our
principal objective is to be able to fund the firm and to
enable our core businesses to continue to serve clients and
generate revenues, even under adverse circumstances.
We manage liquidity risk according to the following
principles:
Excess Liquidity. We maintain substantial excess liquidity
to meet a broad range of potential cash outflows and
collateral needs in a stressed environment.
Asset-Liability Management. We assess anticipated
holding periods for our assets and their expected liquidity in
a stressed environment. We manage the maturities and
diversity of our funding across markets, products and
counterparties, and seek to maintain liabilities of
appropriate tenor relative to our asset base.
Contingency Funding Plan. We maintain a contingency
funding plan to provide a framework for analyzing and
responding to a liquidity crisis situation or periods of
market stress. This framework sets forth the plan of action
to fund normal business activity in emergency and stress
situations. These principles are discussed in more
detail below.
Excess Liquidity
Our most important liquidity policy is to pre-fund our
estimated potential cash and collateral needs during a
liquidity crisis and hold this excess liquidity in the form of
unencumbered, highly liquid securities and cash. We believe
that the securities held in our global core excess would be
readily convertible to cash in a matter of days, through
liquidation, by entering into repurchase agreements or from
maturities of resale agreements, and that this cash would
allow us to meet immediate obligations without needing to
sell other assets or depend on additional funding from
credit-sensitive markets.
As of December 2013 and December 2012, the fair value of
the securities and certain overnight cash deposits included
in our GCE totaled $184.07 billion and $174.62 billion,
respectively. Based on the results of our internal liquidity
risk model, discussed below, as well as our consideration of
other factors including, but not limited to, an assessment of
our potential intraday liquidity needs and a qualitative
assessment of the condition of the financial markets and the
firm, we believe our liquidity position as of both
December 2013 and December 2012 was appropriate.
The table below presents the fair value of the securities and
certain overnight cash deposits that are included in
our GCE.
Average for the
Year Ended December
in millions 2013 2012
U.S. dollar-denominated $136,824 $125,111
Non-U.S. dollar-denominated 45,826 46,984
Total $182,650 $172,095
The U.S. dollar-denominated excess is composed of
(i) unencumbered U.S. government and federal agency
obligations (including highly liquid U.S. federal agency
mortgage-backed obligations), all of which are eligible as
collateral in Federal Reserve open market operations and
(ii) certain overnight U.S. dollar cash deposits. The non-
U.S. dollar-denominated excess is composed of only
unencumbered German, French, Japanese and United
Kingdom government obligations and certain overnight
cash deposits in highly liquid currencies. We strictly limit
our excess liquidity to this narrowly defined list of securities
and cash because they are highly liquid, even in a difficult
funding environment. We do not include other potential
sources of excess liquidity, such as less liquid
unencumbered securities or committed credit facilities, in
our GCE.
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