Goldman Sachs 2015 Annual Report Download - page 25

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The proposed rule would also prohibit Group Inc., as a U.S.
G-SIB, from (i) guaranteeing liabilities of subsidiaries that
are subject to early termination provisions if the parent
company of a U.S. G-SIB enters into an insolvency or
receivership proceeding, (ii) incurring liabilities guaranteed
by subsidiaries, (iii) issuing short-term debt, or (iv) entering
into derivatives and certain other financial contracts with
external counterparties. Additionally, the proposed rule
would cap, at 5% of the value of the U.S. G-SIB’s eligible
TLAC, the amount of a U.S. G-SIB’s unsecured non-
contingent third-party liabilities that are not eligible long-
term debt that could rank equally with or junior to eligible
long-term debt. Finally, the proposed rule would require
U.S. G-SIBs and other large banking entities to deduct from
their own Tier 2 capital certain holdings in unsecured debt
of other U.S. G-SIBs, as well as holdings of their own
unsecured debt securities. The Federal Reserve Board has
also indicated that it is considering imposing subsidiary
TLAC requirements on material operating subsidiaries of
U.S. G-SIBs.
In November 2015, the Financial Stability Board issued a
set of final principles and a final term sheet on a new
minimum standard for TLAC of G-SIBs. The Financial
Stability Board’s final standard also requires certain
material subsidiaries of a G-SIB organized outside of the
G-SIB’s home country, such as GSI, to maintain amounts of
TLAC to facilitate the transfer of losses from operating
subsidiaries to the parent company.
Also, in November 2015, the Basel Committee issued a
proposal to implement internationally the capital
deductions for G-SIBs’ holdings of the TLAC of other
G-SIBs and their own, which will inform how the
deductions are implemented by other national regulators.
In December 2015, the Bank of England published a
consultation paper on its approach for setting a “minimum
requirement for own funds and eligible liabilities” (MREL)
under which certain U.K. financial institutions, including
GSI, would need to maintain equity and liabilities sufficient
to credibly bear losses in resolution. MREL is generally
consistent with the Financial Stability Board’s TLAC
standard.
The proposed MREL is the sum of a loss absorption
amount and a recapitalization amount. The loss absorption
amount is based on a firm’s minimum going-concern
capital requirement, which currently consists of Pillar 1 (the
minimum capital requirement under the fourth EU Capital
Requirements Directive and EU Capital Requirements
Regulation, collectively known as CRD IV), plus Pillar 2A
(an additional amount to cover risks not adequately
captured in Pillar 1). The recapitalization amount is based
on a firm’s recapitalization needs post-resolution and any
additional requirements to be determined by the Bank of
England as necessary to maintain market confidence.
Resolution and Recovery. Each bank holding company
with over $50 billion in assets and each designated
systemically important financial institution is required by
the Federal Reserve Board and the FDIC to provide an
annual plan for its rapid and orderly resolution in the event
of material financial distress or failure (resolution plan).
Our resolution plan must, among other things, demonstrate
that GS Bank USA is adequately protected from risks
arising from our other entities. The regulators’ joint rule
sets specific standards for the resolution plans, including
requiring a detailed resolution strategy and analyses of the
company’s material entities, organizational structure,
interconnections and interdependencies, and management
information systems, among other elements. If the
regulators jointly determine that an institution has failed to
cure identified shortcomings in its resolution plan and that
its resolution plan, after any permitted resubmission, is not
credible, the regulators may jointly impose more stringent
capital, leverage or liquidity requirements or restrictions on
growth, activities or operations or may jointly order the
institutions to divest assets or operations in order to
facilitate orderly resolution in the event of failure.
We are also required by the Federal Reserve Board to
submit, on an annual basis, a global recovery plan that
outlines the steps that management could take to reduce
risk, maintain sufficient liquidity, and conserve capital in
times of prolonged stress.
The FDIC has issued a rule requiring each insured
depository institution with $50 billion or more in assets,
such as GS Bank USA, to provide a resolution plan. Similar
to our resolution plan for Group Inc., our resolution plan
for GS Bank USA must, among other things, demonstrate
that it is adequately protected from risks arising from our
other entities.
Goldman Sachs 2015 Form 10-K 13