Goldman Sachs 2015 Annual Report Download - page 103

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Asset-Liability Management. Our liquidity risk
management policies are designed to ensure we have a
sufficient amount of financing, even when funding markets
experience persistent stress. We manage the maturities and
diversity of our funding across markets, products and
counterparties, and seek to maintain a long-dated and
diversified funding profile, taking into consideration the
characteristics and liquidity profile of our assets.
Our approach to asset-liability management includes:
‰Conservatively managing the overall characteristics of
our funding book, with a focus on maintaining long-term,
diversified sources of funding in excess of our current
requirements. See “Balance Sheet and Funding Sources —
Funding Sources” for additional details;
‰Actively managing and monitoring our asset base, with
particular focus on the liquidity, holding period and our
ability to fund assets on a secured basis. We assess our
funding requirements and our ability to liquidate assets in
a stressed environment while appropriately managing
risk. This enables us to determine the most appropriate
funding products and tenors. See “Balance Sheet and
Funding Sources — Balance Sheet Management” for
more detail on our balance sheet management process
and “— Funding Sources — Secured Funding” for more
detail on asset classes that may be harder to fund on a
secured basis; and
‰Raising secured and unsecured financing that has a long
tenor relative to the liquidity profile of our assets. This
reduces the risk that our liabilities will come due in
advance of our ability to generate liquidity from the sale
of our assets. Because we maintain a highly liquid balance
sheet, the holding period of certain of our assets may be
materially shorter than their contractual maturity dates.
Our goal is to ensure that we maintain sufficient liquidity to
fund our assets and meet our contractual and contingent
obligations in normal times as well as during periods of
market stress. Through our dynamic balance sheet
management process, we use actual and projected asset
balances to determine secured and unsecured funding
requirements. Funding plans are reviewed and approved by
the Firmwide Finance Committee on a quarterly basis. In
addition, senior managers in our independent control and
support functions regularly analyze, and the Firmwide
Finance Committee reviews, our consolidated total capital
position (unsecured long-term borrowings plus total
shareholders’ equity) so that we maintain a level of long-
term funding that is sufficient to meet our long-term
financing requirements. In a liquidity crisis, we would first
use our GCLA in order to avoid reliance on asset sales
(other than our GCLA). However, we recognize that
orderly asset sales may be prudent or necessary in a severe
or persistent liquidity crisis.
Subsidiary Funding Policies
The majority of our unsecured funding is raised by Group
Inc. which lends the necessary funds to its subsidiaries,
some of which are regulated, to meet their asset financing,
liquidity and capital requirements. In addition, Group Inc.
provides its regulated subsidiaries with the necessary capital
to meet their regulatory requirements. The benefits of this
approach to subsidiary funding are enhanced control and
greater flexibility to meet the funding requirements of our
subsidiaries. Funding is also raised at the subsidiary level
through a variety of products, including secured funding,
unsecured borrowings and deposits.
Our intercompany funding policies assume that, unless
legally provided for, a subsidiary’s funds or securities are
not freely available to its parent 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.
Goldman Sachs 2015 Form 10-K 91