Goldman Sachs 2015 Annual Report Download - page 43

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Our cost of obtaining long-term unsecured funding is
directly related to our credit spreads (the amount in excess
of the interest rate of U.S. Treasury securities (or other
benchmark securities) of the same maturity that we need to
pay to our debt investors). Increases in our credit spreads
can significantly increase our cost of this funding. Changes
in credit spreads are continuous, market-driven, and subject
at times to unpredictable and highly volatile movements.
Our credit spreads are also influenced by market
perceptions of our creditworthiness. In addition, our credit
spreads may be influenced by movements in the costs to
purchasers of credit default swaps referenced to our long-
term debt. The market for credit default swaps has proven
to be extremely volatile and at times has lacked a high
degree of transparency or liquidity.
Regulatory changes relating to liquidity may also negatively
impact our results of operations and competitive position.
Recently, numerous regulations have been adopted or
proposed, and additional regulations are under
consideration, to introduce more stringent liquidity
requirements for large financial institutions. These
regulations and others being considered address, among
other matters, liquidity stress testing, minimum liquidity
requirements, wholesale funding, limitations on the
issuance of short-term debt and structured notes and
prohibitions on parent guarantees that are subject to cross-
defaults. These may overlap with, and be impacted by,
other regulatory changes, including new guidance on the
treatment of brokered deposits and the capital, leverage and
resolution and recovery frameworks applicable to large
financial institutions, as well as proposals relating to
minimum long-term debt requirements and TLAC,
including limitations on the terms of eligible debt securities
qualifying as TLAC or as eligible long-term debt – limiting
events of default, excluding structured notes and
restrictions on non-U.S. governing law. Given the overlap
and complex interactions among these new and prospective
regulations, they may have unintended cumulative effects,
and their full impact will remain uncertain until
implementation of post-financial crisis regulatory reform is
complete.
A failure to appropriately identify and address
potential conflicts of interest could adversely affect
our businesses.
Due to the broad scope of our businesses and our client
base, we regularly address potential conflicts of interest,
including situations where our services to a particular client
or our own investments or other interests conflict, or are
perceived to conflict, with the interests of another client, as
well as situations where one or more of our businesses have
access to material non-public information that may not be
shared with other businesses within the firm and situations
where we may be a creditor of an entity with which we also
have an advisory or other relationship.
In addition, our status as a bank holding company subjects
us to heightened regulation and increased regulatory
scrutiny by the Federal Reserve Board with respect to
transactions between GS Bank USA and entities that are or
could be viewed as affiliates of ours and, under the Volcker
Rule, transactions between Goldman Sachs and certain
covered funds.
We have extensive procedures and controls that are
designed to identify and address conflicts of interest,
including those designed to prevent the improper sharing of
information among our businesses. However,
appropriately identifying and dealing with conflicts of
interest is complex and difficult, and our reputation, which
is one of our most important assets, could be damaged and
the willingness of clients to enter into transactions with us
may be affected if we fail, or appear to fail, to identify,
disclose and deal appropriately with conflicts of interest. In
addition, potential or perceived conflicts could give rise to
litigation or regulatory enforcement actions.
A failure in our operational systems or infrastructure,
or those of third parties, as well as human error, could
impair our liquidity, disrupt our businesses, result in
the disclosure of confidential information, damage
our reputation and cause losses.
Our businesses are highly dependent on our ability to
process and monitor, on a daily basis, a large number of
transactions, many of which are highly complex and occur
at high volumes and frequencies, across numerous and
diverse markets in many currencies. These transactions, as
well as the information technology services we provide to
clients, often must adhere to client-specific guidelines, as
well as legal and regulatory standards.
Goldman Sachs 2015 Form 10-K 31