Goldman Sachs 2015 Annual Report Download - page 28

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Activities. The Dodd-Frank Act and the BHC Act
generally restrict bank holding companies from engaging in
business activities other than the business of banking and
certain closely related activities.
Volcker Rule. The provisions of the Dodd-Frank Act
referred to as the “Volcker Rule” became effective in
July 2015. The Volcker Rule prohibits “proprietary
trading,” but permits activities such as underwriting,
market making and risk-mitigation hedging, requires an
extensive compliance program and includes additional
reporting and record keeping requirements. The reporting
requirements include calculating daily quantitative metrics
on covered trading activities (as defined in the rule) and
providing these metrics to regulators on a monthly basis.
In addition, the Volcker Rule limits the sponsorship of, and
investment in, “covered funds” (as defined in the rule) by
banking entities, including Group Inc. and its subsidiaries.
It also limits certain types of transactions between us and
our sponsored funds, similar to the limitations on
transactions between depository institutions and their
affiliates. Covered funds include our private equity funds,
certain of our credit and real estate funds, our hedge funds
and certain other investment structures. The limitation on
investments in covered funds requires us to reduce our
investment in each such fund to 3% or less of the fund’s net
asset value, and to reduce our aggregate investment in all
such funds to 3% or less of our Tier 1 capital.
In December 2014, the Federal Reserve Board extended the
conformance period through July 2016 for investments in,
and relationships with, covered funds that were in place
prior to December 31, 2013, and indicated that it intends to
further extend the conformance period through July 2017.
See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Regulatory
Developments — Volcker Rule” in Part II, Item 7 of the
2015 Form 10-K for information about our investments in
covered funds.
Other Restrictions. Financial holding companies generally
can engage in a broader range of financial and related
activities than are otherwise permissible for bank holding
companies as long as they continue to meet the eligibility
requirements for financial holding companies. The broader
range of permissible activities for financial holding
companies includes underwriting, dealing and making
markets in securities and making investments in non-
financial companies. In addition, financial holding
companies are permitted under the GLB Act to engage in
certain commodities activities in the United States that may
otherwise be impermissible for bank holding companies, so
long as the assets held pursuant to these activities do not
equal 5% or more of their consolidated assets.
The Federal Reserve Board, however, has the authority to
limit a financial holding company’s ability to conduct
activities that would otherwise be permissible, and will
likely do so if the financial holding company does not
satisfactorily meet certain requirements of the Federal
Reserve Board. For example, if a financial holding company
or any of its U.S. depository institution subsidiaries ceases
to maintain its status as well-capitalized or well-managed,
the Federal Reserve Board may impose corrective capital
and/or managerial requirements, as well as additional
limitations or conditions. If the deficiencies persist, the
financial holding company may be required to divest its
U.S. depository institution subsidiaries or to cease engaging
in activities other than the business of banking and certain
closely related activities.
In addition, we are required to obtain prior Federal Reserve
Board approval before engaging in certain banking and
other financial activities both within and outside the United
States.
Single-counterparty credit limits and early remediation
requirements have been proposed but are still under
consideration by the Federal Reserve Board. The proposed
single-counterparty credit limits impose more stringent
requirements for credit exposure among major financial
institutions, which (together with other provisions
incorporated into the Basel III capital rules) may affect our
ability to transact or hedge with other financial institutions.
The proposed early remediation rules are modeled on the
prompt corrective action regime, described under “U.S.
Deposit Insurance and Prompt Corrective Action”, but are
designed to require action to begin in earlier stages of a
company’s financial distress, based on a range of triggers,
including capital and leverage, stress test results, liquidity
and risk management.
16 Goldman Sachs 2015 Form 10-K