Goldman Sachs 2015 Annual Report Download - page 171

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10.
Collateralized Agreements and Financings
Collateralized agreements are securities purchased under
agreements to resell (resale agreements) and securities
borrowed. Collateralized financings are securities sold
under agreements to repurchase (repurchase agreements),
securities loaned and other secured financings. The firm
enters into these transactions in order to, among other
things, facilitate client activities, invest excess cash, acquire
securities to cover short positions and finance certain firm
activities.
Collateralized agreements and financings are presented on a
net-by-counterparty basis when a legal right of setoff exists.
Interest on collateralized agreements and collateralized
financings is recognized over the life of the transaction and
included in “Interest income” and “Interest expense,”
respectively. See Note 23 for further information about
interest income and interest expense.
The table below presents the carrying value of resale and
repurchase agreements and securities borrowed and loaned
transactions.
As of December
$ in millions 2015 2014
Securities purchased under agreements to
resell 1$120,905 $127,938
Securities borrowed 2172,099 160,722
Securities sold under agreements to
repurchase 186,069 88,215
Securities loaned 23,614 5,570
1. Substantially all resale agreements and all repurchase agreements are carried
at fair value under the fair value option. See Note 8 for further information
about the valuation techniques and significant inputs used to determine fair
value.
2. As of December 2015 and December 2014, $69.80 billion and $66.77 billion
of securities borrowed, and $466 million and $765 million of securities loaned
were at fair value, respectively.
Resale and Repurchase Agreements
A resale agreement is a transaction in which the firm
purchases financial instruments from a seller, typically in
exchange for cash, and simultaneously enters into an
agreement to resell the same or substantially the same
financial instruments to the seller at a stated price plus
accrued interest at a future date.
A repurchase agreement is a transaction in which the firm
sells financial instruments to a buyer, typically in exchange
for cash, and simultaneously enters into an agreement to
repurchase the same or substantially the same financial
instruments from the buyer at a stated price plus accrued
interest at a future date.
The financial instruments purchased or sold in resale and
repurchase agreements typically include U.S. government
and federal agency, and investment-grade sovereign
obligations.
The firm receives financial instruments purchased under
resale agreements and makes delivery of financial
instruments sold under repurchase agreements. To mitigate
credit exposure, the firm monitors the market value of these
financial instruments on a daily basis, and delivers or
obtains additional collateral due to changes in the market
value of the financial instruments, as appropriate. For
resale agreements, the firm typically requires collateral with
a fair value approximately equal to the carrying value of the
relevant assets in the consolidated statements of financial
condition.
Even though repurchase and resale agreements (including
“repos- and reverses-to-maturity”) involve the legal
transfer of ownership of financial instruments, they are
accounted for as financing arrangements because they
require the financial instruments to be repurchased or
resold at the maturity of the agreement. A repo-to-maturity
is a transaction in which the firm transfers a security under
an agreement to repurchase the security where the maturity
date of the repurchase agreement matches the maturity date
of the underlying security. Prior to January 2015, repos-to-
maturity were accounted for as sales. The firm had no
repos-to-maturity as of December 2015 and
December 2014. See Note 3 for information about changes
to the accounting for repos-to-maturity which became
effective in January 2015.
Goldman Sachs 2015 Form 10-K 159