Goldman Sachs 2015 Annual Report Download - page 24

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Source of Strength. The Dodd-Frank Act requires bank
holding companies to act as a source of strength to their
bank subsidiaries and to commit capital and financial
resources to support those subsidiaries. This support may
be required by the Federal Reserve Board at times when we
might otherwise determine not to provide it. Capital loans
by a bank holding company to a subsidiary bank are
subordinate in right of payment to deposits and to certain
other indebtedness of the subsidiary bank. In addition, if a
bank holding company commits to a federal bank regulator
that it will maintain the capital of its bank subsidiary,
whether in response to the Federal Reserve Board’s
invoking its source-of-strength authority or in response to
other regulatory measures, that commitment will be
assumed by the bankruptcy trustee for the holding
company and the bank will be entitled to priority payment
in respect of that commitment, ahead of other creditors of
the bank holding company.
Transactions between Affiliates. Transactions between
GS Bank USA or its subsidiaries, on the one hand, and
Group Inc. or its other subsidiaries and affiliates, on the
other hand, are regulated by the Federal Reserve Board.
These regulations generally limit the types and amounts of
transactions (including credit extensions from GS Bank
USA or its subsidiaries to Group Inc. or its other
subsidiaries and affiliates) that may take place and
generally require those transactions to be on market terms
or better to GS Bank USA or its subsidiaries. These
regulations generally do not apply to transactions between
GS Bank USA and its subsidiaries. The Dodd-Frank Act
expanded the coverage and scope of these regulations,
including by applying them to the credit exposure arising
under derivative transactions, repurchase and reverse
repurchase agreements, and securities borrowing and
lending transactions.
Total Loss-Absorbing Capacity. In October 2015, the
Federal Reserve Board issued a proposed rule that would
establish loss-absorbency and related requirements for U.S.
G-SIBs. The proposed rule would address U.S.
implementation of the Financial Stability Board’s total loss-
absorbing capacity (TLAC) principles and term sheet
described below. The proposed rule would require U.S.
G-SIBs, such as Group Inc., to maintain minimum external
TLAC, consisting of Tier 1 capital and eligible senior and
subordinated long-term debt (i.e., debt that is unsecured,
has a maturity greater than one year from issuance and
satisfies certain additional criteria), equal to the greater of
(i) 16% of risk-weighted assets (RWAs) and (ii) 9.5% of
total leverage exposure (the denominator of the
supplementary leverage ratio) commencing
January 1, 2019. The RWA component would increase to
18% of RWAs on January 1, 2022. The proposed rule
would also require a buffer of CET1 in an amount equal to
the sum of (i) the capital conservation buffer (2.5% of
RWAs), (ii) the G-SIB surcharge calculated in accordance
with the Method One calculation and (iii) any applicable
counter-cyclical capital buffer.
In addition, beginning in 2019, U.S. G-SIBs would also be
required to maintain minimum eligible long-term debt
equal to the greater of (i) 6% plus the G-SIB surcharge of
RWAs and (ii) 4.5% of total leverage exposure. The
proposed rule would disqualify from eligible long-term
debt, among other instruments, debt securities that permit
acceleration for reasons other than insolvency or payment
default, as well as structured notes and debt securities not
governed by U.S. law. The senior long-term debt of U.S.
G-SIBs, including Group Inc., typically permits acceleration
for reasons other than insolvency or payment default, and
therefore would not qualify as eligible long-term debt under
the proposed rule.
12 Goldman Sachs 2015 Form 10-K