Goldman Sachs 2015 Annual Report Download - page 27

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The orderly liquidation authority provisions of the Dodd-
Frank Act became effective upon enactment. The FDIC has
completed several rulemakings and taken other actions
under the orderly liquidation authority, including the
issuance of a notice describing some elements of its “single
point of entry” or “SPOE” strategy pursuant to the orderly
liquidation authority provisions of the Dodd-Frank Act.
Under this strategy, the FDIC would, among other things,
resolve a failed financial holding company by transferring
its assets to a “bridge” holding company.
In November 2015, we, along with a number of other
major global banking organizations, adhered to an updated
version of the International Swaps and Derivatives
Association Resolution Stay Protocol (the ISDA Protocol)
that was developed in coordination with the Financial
Stability Board. The ISDA Protocol imposes a stay on
certain cross-default and early termination rights within
standard ISDA derivatives contracts and securities
financing transactions between adhering parties in the event
that one of them is subject to resolution in its home
jurisdiction, including a resolution under the orderly
liquidation authority in the United States. The initial
version, which addressed ISDA derivatives contracts, took
effect in January 2015, and the updated version, which was
revised to also cover securities financing transactions, took
effect in January 2016. The ISDA Protocol is expected to be
adopted more broadly in the future, following the adoption
of regulations by banking regulators, and expanded to
include instances where a U.S. financial holding company
becomes subject to proceedings under the U.S. bankruptcy
code.
FDIC Insurance. GS Bank USA accepts deposits, and those
deposits have the benefit of FDIC insurance up to the
applicable limits. The FDIC’s Deposit Insurance Fund is
funded by assessments on insured depository institutions,
such as GS Bank USA. The amounts of these assessments
for larger depository institutions (generally those that have
$10 billion in assets or more), such as GS Bank USA, are
currently based on the average total consolidated assets less
the average tangible equity of the insured depository
institution during the assessment period, the supervisory
ratings of the insured depository institution and specified
forward-looking financial measures used to calculate the
assessment rate. The assessment rate is subject to
adjustment by the FDIC.
In October 2015, the FDIC issued a proposed rule that
would increase the reserve ratio for the Deposit Insurance
Fund to 1.35% of total insured deposits. The proposed rule
would impose a surcharge on the assessments of larger
depository institutions, beginning the quarter after the
reserve ratio first reaches or exceeds 1.15% and continuing
through the earlier of the quarter that the reserve ratio first
reaches or exceeds 1.35% and December 31, 2018. Under
the proposed rule, if the reserve ratio does not reach 1.35%
by December 31, 2018, the FDIC would impose a shortfall
assessment on larger depository institutions, including GS
Bank USA.
Prompt Corrective Action. The U.S. Federal Deposit
Insurance Corporation Improvement Act of 1991
(FDICIA), among other things, requires the federal bank
regulatory agencies to take “prompt corrective action” in
respect of depository institutions that do not meet specified
capital requirements. FDICIA establishes five capital
categories for FDIC-insured banks: well-capitalized,
adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
An institution may be downgraded to, or deemed to be in, a
capital category that is lower than is indicated by its capital
ratios if it is determined to be in an unsafe or unsound
condition or if it receives an unsatisfactory examination
rating with respect to certain matters. FDICIA imposes
progressively more restrictive constraints on operations,
management and capital distributions, as the capital
category of an institution declines. Failure to meet the
capital requirements could also require a depository
institution to raise capital. Ultimately, critically
undercapitalized institutions are subject to the appointment
of a receiver or conservator, as described under “Resolution
and Recovery, and Insolvency — Insolvency of an Insured
Depository Institution or a Bank Holding Company”
above.
The prompt corrective action regulations apply only to
depository institutions and not to bank holding companies
such as Group Inc. However, the Federal Reserve Board is
authorized to take appropriate action at the holding
company level, based upon the undercapitalized status of
the holding company’s depository institution subsidiaries.
In certain instances relating to an undercapitalized
depository institution subsidiary, the bank holding
company would be required to guarantee the performance
of the undercapitalized subsidiary’s capital restoration plan
and might be liable for civil money damages for failure to
fulfill its commitments on that guarantee. Furthermore, in
the event of the bankruptcy of the holding company, the
guarantee would take priority over the holding company’s
general unsecured creditors, as described under “Source of
Strength” above.
Goldman Sachs 2015 Form 10-K 15