Goldman Sachs 2015 Annual Report Download - page 106

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Unfunded Commitments
‰Contingent: Draws on our unfunded commitments. Draw
assumptions reflect, among other things, the type of
commitment and counterparty.
Other
‰Other upcoming large cash outflows, such as tax
payments.
Intraday Liquidity Model. Our Intraday Liquidity Model
measures our intraday liquidity needs using a scenario
analysis characterized by the same qualitative elements as
our Modeled Liquidity Outflow. The model assesses the
risk of increased intraday liquidity requirements during a
scenario where access to sources of intraday liquidity may
become constrained.
The following are key modeling elements of the Intraday
Liquidity Model:
‰Liquidity needs over a one-day settlement period;
‰Delays in receipt of counterparty cash payments;
‰A reduction in the availability of intraday credit lines at
our third-party clearing agents; and
‰Higher settlement volumes due to an increase in activity.
Long-Term Stress Testing. We utilize a longer-term
stress test to take a forward view on our liquidity position
through a prolonged stress period in which the firm
experiences a severe liquidity stress and recovers in an
environment that continues to be challenging. We are
focused on ensuring conservative asset-liability
management to prepare for a prolonged period of potential
stress, seeking to maintain a long-dated and diversified
funding profile, taking into consideration the
characteristics and liquidity profile of our assets.
We also run stress tests on a regular basis as part of our
routine risk management processes and conduct tailored
stress tests on an ad hoc or product-specific basis in
response to market developments.
Model Review and Validation
Treasury regularly refines our Modeled Liquidity Outflow,
Intraday Liquidity Model and our stress testing models to
reflect changes in market or economic conditions and our
business mix. Any changes, including model assumptions,
are assessed and approved by Liquidity Risk Management.
Model Risk Management is responsible for the independent
review and validation of our liquidity models. See “Model
Risk Management” for further information about the
review and validation of these models.
Limits
We use liquidity limits at various levels and across liquidity
risk types to control the size of our liquidity exposures.
Limits are measured relative to acceptable levels of risk
given the liquidity risk tolerance of the firm. The purpose of
the firmwide limits is to assist senior management in
monitoring and controlling our overall liquidity profile.
The Risk Committee of the Board and the Firmwide
Finance Committee approve liquidity risk limits at the
firmwide level. Limits are reviewed frequently and
amended, with required approvals, on a permanent and
temporary basis, as appropriate, to reflect changing market
or business conditions.
Our liquidity risk limits are monitored by Treasury and
Liquidity Risk Management. Treasury is responsible for
identifying and escalating, on a timely basis, instances
where limits have been exceeded.
GCLA and Unencumbered Metrics
GCLA. Based on the results of our internal liquidity risk
models, described above, as well as our consideration of
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 believe our liquidity position as of both
December 2015 and December 2014 was appropriate. As
of December 2015 and December 2014, the fair value of the
securities and certain overnight cash deposits included in
our GCLA totaled $199.12 billion and $182.95 billion,
respectively, and the fair value of these assets averaged
$187.75 billion for 2015 and $179.63 billion for 2014.
94 Goldman Sachs 2015 Form 10-K