Goldman Sachs 2013 Annual Report Download - page 89

Management’s Discussion and Analysis
Our intercompany funding policies assume that, unless
legally provided for, a subsidiary’s funds or securities are
not freely available to its parent company or other
subsidiaries. In particular, many of our subsidiaries are
subject to laws that authorize regulatory bodies to block or
reduce the flow of funds from those subsidiaries to Group
Inc. Regulatory action of that kind could impede access to
funds that Group Inc. needs to make payments on its
obligations. Accordingly, we assume that the capital
provided to our regulated subsidiaries is not available to
Group Inc. or other subsidiaries and any other financing
provided to our regulated subsidiaries is not available until
the maturity of such financing.
Group Inc. has provided substantial amounts of equity and
subordinated indebtedness, directly or indirectly, to its
regulated subsidiaries. For example, as of December 2013,
Group Inc. had $31.40 billion of equity and subordinated
indebtedness invested in GS&Co., its principal U.S.
registered broker-dealer; $26.40 billion invested in GSI, a
regulated U.K. broker-dealer; $2.26 billion invested in
GSEC, a U.S. registered broker-dealer; $2.82 billion
invested in GSJCL, a regulated Japanese broker-dealer;
$20.04 billion invested in GS Bank USA, a regulated New
York State-chartered bank; and $3.50 billion invested in
GSIB, a regulated U.K. bank. Group Inc. also provided,
directly or indirectly, $75.77 billion of unsubordinated
loans and $9.93 billion of collateral to these entities,
substantially all of which was to GS&Co., GSI and GS
Bank USA, as of December 2013. In addition, as of
December 2013, Group Inc. had significant amounts of
capital invested in and loans to its other
regulated subsidiaries.
Contingency Funding Plan
The Goldman Sachs contingency funding plan sets out the
plan of action we would use to fund business activity in
crisis situations and periods of market stress. The
contingency funding plan outlines a list of potential risk
factors, key reports and metrics that are reviewed on an
ongoing basis to assist in assessing the severity of, and
managing through, a liquidity crisis and/or market
dislocation. The contingency funding plan also describes in
detail the firm’s potential responses if our assessments
indicate that the firm has entered a liquidity crisis, which
include funding our potential cash and collateral needs as
well as utilizing secondary sources of liquidity. Mitigants
and action items to address specific risks which may arise
are also described and assigned to individuals responsible
for execution.
The contingency funding plan identifies key groups of
individuals to foster effective coordination, control and
distribution of information, all of which are critical in the
management of a crisis or period of market stress. The
contingency funding plan also details the responsibilities
of these groups and individuals, which include making
and disseminating key decisions, coordinating all
contingency activities throughout the duration of the crisis
or period of market stress, implementing liquidity
maintenance activities and managing internal and
external communication.
Proposed Liquidity Framework
The Basel Committee on Banking Supervision’s
international framework for liquidity risk measurement,
standards and monitoring calls for imposition of a liquidity
coverage ratio, designed to ensure that banks and bank
holding companies maintain an adequate level of
unencumbered high-quality liquid assets based on expected
cash outflows under an acute liquidity stress scenario, and a
net stable funding ratio, designed to promote more
medium- and long-term funding of the assets and activities
of these entities over a one-year time horizon. Under the
Basel Committee framework, the liquidity coverage ratio
would be introduced on January 1, 2015; however, there
would be a phase-in period whereby firms would have a
60% minimum in 2015 which would be raised 10% per
year until it reaches 100% in 2019. The net stable funding
ratio is not expected to be introduced as a requirement until
January 1, 2018.
In addition, the Office of the Comptroller of the Currency,
the Federal Reserve Board and the FDIC have issued a
proposal on minimum liquidity standards that is generally
consistent with the Basel Committee’s framework as
described above, but, with certain modifications to the
high-quality liquid asset definition and expected cash
outflow assumptions, and accelerated transition provisions.
In addition, under the proposed accelerated transition
timeline, the liquidity coverage ratio would be introduced
on January 1, 2015; however, there would be an
accelerated U.S. phase-in period whereby firms would have
an 80% minimum in 2015 which would be raised 10% per
year until it reaches 100% in 2017.
The firm will continue to evaluate the impact to our risk
management framework going forward. While the
principles behind the new frameworks proposed by the
Basel Committee and the Agencies are broadly consistent
with our current liquidity management framework, it is
possible that the implementation of these standards could
impact our liquidity and funding requirements
and practices.
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