Goldman Sachs 2013 Annual Report Download - page 86

Management’s Discussion and Analysis
The table below presents the fair value of our GCE by
asset class.
Average for the
Year Ended December
in millions 2013 2012
Overnight cash deposits $ 61,265 $ 52,233
U.S. government obligations 76,019 72,379
U.S. federal agency obligations,
including highly liquid
U.S. federal agency
mortgage-backed obligations 2,551 2,313
German, French, Japanese
and United Kingdom
government obligations 42,815 45,170
Total $182,650 $172,095
Our GCE is held by Group Inc. and our major broker-
dealer and bank subsidiaries, as presented in the
table below.
Average for the
Year Ended December
in millions 2013 2012
Group Inc. $ 29,752 $ 37,405
Major broker-dealer subsidiaries 93,103 78,229
Major bank subsidiaries 59,795 56,461
Total $182,650 $172,095
Our GCE reflects the following principles:
‰The first days or weeks of a liquidity crisis are the most
critical to a company’s survival.
‰Focus must be maintained on all potential cash and
collateral outflows, not just disruptions to financing
flows. Our businesses are diverse, and our liquidity needs
are determined by many factors, including market
movements, collateral requirements and client
commitments, all of which can change dramatically in a
difficult funding environment.
‰During a liquidity crisis, credit-sensitive funding,
including unsecured debt and some types of secured
financing agreements, may be unavailable, and the terms
(e.g., interest rates, collateral provisions and tenor) or
availability of other types of secured financing
may change.
‰As a result of our policy to pre-fund liquidity that we
estimate may be needed in a crisis, we hold more
unencumbered securities and have larger debt balances
than our businesses would otherwise require. We believe
that our liquidity is stronger with greater balances of
highly liquid unencumbered securities, even though it
increases our total assets and our funding costs.
We believe that our GCE provides us with a resilient source
of funds that would be available in advance of potential cash
and collateral outflows and gives us significant flexibility in
managing through a difficult funding environment.
In order to determine the appropriate size of our GCE, we
use an internal liquidity model, referred to as the Modeled
Liquidity Outflow, which captures and quantifies the firm’s
liquidity risks. We also consider 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 distribute our GCE across entities, asset types, and
clearing agents to provide us with sufficient operating
liquidity to ensure timely settlement in all major markets,
even in a difficult funding environment.
We maintain our GCE to enable us to meet current and
potential liquidity requirements of our parent company,
Group Inc., and its subsidiaries. The Modeled Liquidity
Outflow incorporates a consolidated requirement for the
firm as well as a standalone requirement for each of our
major broker-dealer and bank subsidiaries. Liquidity held
directly in each of these major subsidiaries is intended for
use only by that subsidiary to meet its liquidity
requirements and is assumed not to be available to Group
Inc. unless (i) legally provided for and (ii) there are no
additional regulatory, tax or other restrictions. In addition,
the Modeled Liquidity Outflow incorporates a broader
assessment of standalone liquidity requirements for other
subsidiaries and we hold a portion of our GCE directly at
Group Inc. to support such requirements. In addition to the
GCE, we maintain operating cash balances in several of our
other operating entities, primarily for use in specific
currencies, entities, or jurisdictions where we do not have
immediate access to parent company liquidity.
In addition to our GCE, we have a significant amount of
other unencumbered cash and financial instruments,
including other government obligations, high-grade money
market securities, corporate obligations, marginable
equities, loans and cash deposits not included in our GCE.
The fair value of these assets averaged $90.77 billion for
2013 and $87.09 billion for 2012. We do not consider these
assets liquid enough to be eligible for our GCE liquidity
pool and therefore conservatively do not assume we will
generate liquidity from these assets in our Modeled
Liquidity Outflow.
84 Goldman Sachs 2013 Annual Report