Goldman Sachs 2015 Annual Report Download - page 104

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Group Inc. has provided substantial amounts of equity and
subordinated indebtedness, directly or indirectly, to its
regulated subsidiaries. For example, as of December 2015,
Group Inc. had $28.39 billion of equity and subordinated
indebtedness invested in GS&Co., its principal U.S.
registered broker-dealer; $32.88 billion invested in GSI, a
regulated U.K. broker-dealer; $2.30 billion invested in
GSEC, a U.S. registered broker-dealer; $2.58 billion
invested in Goldman Sachs Japan Co., Ltd. (GSJCL), a
regulated Japanese broker-dealer; $25.20 billion invested in
GS Bank USA, a regulated New York State-chartered bank;
and $3.64 billion invested in GSIB, a regulated U.K. bank.
Group Inc. also provided, directly or indirectly,
$91.97 billion of unsubordinated loans and $8.81 billion of
collateral to these entities, substantially all of which was to
GS&Co., GSI, GSJCL and GS Bank USA, as of
December 2015. In addition, as of December 2015, Group
Inc. had significant amounts of capital invested in and loans
to its other regulated subsidiaries.
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. Our 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 our potential responses if our
assessments indicate that we have entered a liquidity crisis,
which include pre-funding for what we estimate will be 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.
Liquidity Stress Tests
In order to determine the appropriate size of our GCLA, we
use an internal liquidity model, referred to as the Modeled
Liquidity Outflow, which captures and quantifies our
liquidity risks. We also consider other factors including, but
not limited to, an assessment of our potential intraday
liquidity needs through an additional internal liquidity
model, referred to as the Intraday Liquidity Model, the
results of our long-term stress testing models, applicable
regulatory requirements and a qualitative assessment of the
condition of the financial markets and the firm. The results
of the Modeled Liquidity Outflow, the Intraday Liquidity
Model and the long-term stress testing models are reported
to senior management on a regular basis.
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; and
‰A firm-specific crisis potentially triggered by material
losses, reputational damage, litigation, executive
departure, and/or a ratings downgrade.
92 Goldman Sachs 2015 Form 10-K