Goldman Sachs 2013 Annual Report Download - page 87

Management’s Discussion and Analysis
Modeled Liquidity Outflow. Our Modeled Liquidity
Outflow is based on conducting multiple scenarios that
include combinations of market-wide and firm-specific
stress. These scenarios are characterized by the following
qualitative elements:
‰Severely challenged market environments, including low
consumer and corporate confidence, financial and
political instability, adverse changes in market values,
including potential declines in equity markets and
widening of credit spreads.
‰A firm-specific crisis potentially triggered by material
losses, reputational damage, litigation, executive
departure, and/or a ratings downgrade.
The following are the critical modeling parameters of the
Modeled Liquidity Outflow:
‰Liquidity needs over a 30-day scenario.
‰A two-notch downgrade of the firm’s long-term senior
unsecured credit ratings.
‰A combination of contractual outflows, such as
upcoming maturities of unsecured debt, and contingent
outflows (e.g., actions though not contractually required,
we may deem necessary in a crisis). We assume that most
contingent outflows will occur within the initial days and
weeks of a crisis.
‰No issuance of equity or unsecured debt.
‰No support from government funding facilities. Although
we have access to various central bank funding programs,
we do not assume reliance on them as a source of funding
in a liquidity crisis.
‰We do not assume asset liquidation, other than the GCE.
The Modeled Liquidity Outflow is calculated and reported
to senior management on a daily basis. We regularly refine
our model to reflect changes in market or economic
conditions and the firm’s business mix.
The potential contractual and contingent cash and
collateral outflows covered in our Modeled Liquidity
Outflow include:
Unsecured Funding
‰Contractual: All upcoming maturities of unsecured long-
term debt, commercial paper, promissory notes and other
unsecured funding products. We assume that we will be
unable to issue new unsecured debt or roll over any
maturing debt.
‰Contingent: Repurchases of our outstanding long-term
debt, commercial paper and hybrid financial instruments
in the ordinary course of business as a market maker.
Deposits
‰Contractual: All upcoming maturities of term deposits.
We assume that we will be unable to raise new term
deposits or rollover any maturing term deposits.
‰Contingent: Withdrawals of bank deposits that have no
contractual maturity. The withdrawal assumptions
reflect, among other factors, the type of deposit, whether
the deposit is insured or uninsured, and the firm’s
relationship with the depositor.
Secured Funding
‰Contractual: A portion of upcoming contractual
maturities of secured funding due to either the inability to
refinance or the ability to refinance only at wider haircuts
(i.e., on terms which require us to post additional
collateral). Our assumptions reflect, among other factors,
the quality of the underlying collateral, counterparty roll
probabilities (our assessment of the counterparty’s
likelihood of continuing to provide funding on a secured
basis at the maturity of the trade) and
counterparty concentration.
‰Contingent: Adverse changes in value of financial assets
pledged as collateral for financing transactions, which
would necessitate additional collateral postings under
those transactions.
OTC Derivatives
‰Contingent: Collateral postings to counterparties due to
adverse changes in the value of our OTC derivatives,
excluding those that are cleared and settled through
central counterparties (OTC-cleared).
‰Contingent: Other outflows of cash or collateral related
to OTC derivatives, excluding OTC-cleared, including
the impact of trade terminations, collateral substitutions,
collateral disputes, loss of rehypothecation rights,
collateral calls or termination payments required by a
two-notch downgrade in our credit ratings, and collateral
that has not been called by counterparties, but is available
to them.
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