Goldman Sachs 2015 Annual Report Download - page 23

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Since January 1, 2015, the enhanced prudential standards
implemented by the Federal Reserve Board under the Dodd-
Frank Act have required bank holding companies with
$50 billion or more in total consolidated assets to comply
with enhanced liquidity and overall risk management
standards, including a buffer of highly liquid assets based
on projected funding needs for 30 days, and increased
involvement by boards of directors in liquidity and overall
risk management. Although the liquidity buffer under these
rules has some similarities to the LCR (and is described by
the agencies as complementary to the LCR), it is a separate
requirement that is in addition to the LCR. See
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Risk
Management — Overview and Structure of Risk
Management” and “— Liquidity Risk Management” in
Part II, Item 7 of the 2015 Form 10-K for information
about our risk management practices and liquidity.
Stress Tests. Bank holding companies with total
consolidated assets of $50 billion or more are subject to
Dodd-Frank Act supervisory stress tests conducted by the
Federal Reserve Board and semi-annual company-run stress
tests. The stress test rules require increased involvement by
boards of directors in stress testing and public disclosure of
the results of both the Federal Reserve Board’s annual stress
tests and a bank holding company’s annual supervisory
stress tests, and semi-annual internal stress tests.
We publish summaries of our annual and mid-cycle stress
tests results on our web site as described under “Available
Information” below. Our annual Dodd-Frank Act stress
test submission is incorporated into the annual capital plans
that we are required to submit to the Federal Reserve Board
as part of the Comprehensive Capital Analysis and Review
(CCAR). The purpose of CCAR is to ensure that large bank
holding companies have robust, forward-looking capital
planning processes that account for each institution’s
unique risks and that permit continued operations during
times of economic and financial stress. As part of CCAR,
the Federal Reserve Board evaluates an institution’s plan to
make capital distributions, such as repurchasing or
redeeming stock or increasing dividend payments, across a
range of macroeconomic and firm-specific assumptions.
Similar to Group Inc., GS Bank USA is required to conduct
stress tests on an annual basis, to submit the results to the
Federal Reserve Board, and to make a summary of those
results public. The rules require that the board of directors
of GS Bank USA, among other things, consider the results
of the stress tests in the normal course of the bank’s
business including, but not limited to, its capital planning,
assessment of capital adequacy and risk management
practices.
Dividends and Stock Repurchases. Federal and state
laws impose limitations on the payment of dividends by our
U.S. depository institution subsidiaries to Group Inc. In
general, the amount of dividends that may be paid by GS
Bank USA or our national bank trust company subsidiary is
limited to the lesser of the amounts calculated under a
“recent earnings” test and an “undivided profits” test.
Under the recent earnings test, a dividend may not be paid if
the total of all dividends declared by the entity in any
calendar year is in excess of the current year’s net income
combined with the retained net income of the two
preceding years, unless the entity obtains prior regulatory
approval. Under the undivided profits test, a dividend may
not be paid in excess of the entity’s “undivided profits”
(generally, accumulated net profits that have not been paid
out as dividends or transferred to surplus).
The banking regulators have authority to prohibit or limit
the payment of dividends if, in the banking regulator’s
opinion, payment of a dividend would constitute an unsafe
or unsound practice in light of the financial condition of the
banking organization. The BHC Act prohibits the Federal
Reserve Board from requiring a payment by a holding
company subsidiary to a depository institution if the
functional regulator of that subsidiary objects to such
payment. In such a case, the Federal Reserve Board could
instead require the divestiture of the depository institution
and impose operating restrictions pending the divestiture.
Dividend payments by Group Inc. to its shareholders and
stock repurchases by Group Inc. are subject to the oversight
of the Federal Reserve Board. The dividend and share
repurchase policies of large bank holding companies, such
as Group Inc., are reviewed by the Federal Reserve Board
through the CCAR process, based on capital plans and
stress tests submitted by the bank holding company, and
are assessed against, among other things, the bank holding
company’s ability to meet and exceed minimum regulatory
capital ratios under stressed scenarios, its expected sources
and uses of capital over the planning horizon under baseline
and stressed scenarios, and any potential impact of changes
to its business plan and activities on its capital adequacy
and liquidity.
The Federal Reserve Board’s capital planning rule includes
a limitation on capital distributions to the extent that actual
capital issuances are less than the amount indicated in the
capital plan submission.
Goldman Sachs 2015 Form 10-K 11