Goldman Sachs 2015 Annual Report Download - page 48

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
The FDIC has announced that a single point of entry
strategy may be a desirable strategy under the orderly
liquidation authority to resolve a large financial institution
such as Group Inc. in a manner that would, among other
things, impose losses on shareholders, debt holders
(including, in our case, holders of our debt securities) and
other creditors of the top-tier holding company (in our case,
Group Inc.), while the holding company’s subsidiaries may
continue to operate. It is possible that the application of the
single point of entry strategy, in which Group Inc. would be
the only legal entity to enter resolution proceedings, could
result in greater losses to Group Inc.’s security holders
(including holders of our fixed rate, floating rate and
indexed debt securities), than the losses that could result
from the application of a bankruptcy proceeding or a
different resolution strategy for Group Inc. Assuming
Group Inc. entered resolution proceedings and that support
from Group Inc. to its subsidiaries was sufficient to enable
the subsidiaries to remain solvent, losses at the subsidiary
level would be transferred to Group Inc. and ultimately
borne by Group Inc.’s security holders, third-party
creditors of Group Inc.’s subsidiaries would receive full
recoveries on their claims, and Group Inc.’s security holders
(including our shareholders, holders of our debt securities
and other unsecured creditors) could face significant losses.
The orderly liquidation authority also provides the FDIC
with authority to cause creditors and shareholders of the
financial company such as Group Inc. in receivership to
bear losses before taxpayers are exposed to such losses, and
amounts owed to the U.S. government would generally
receive a statutory payment priority over the claims of
private creditors, including senior creditors. In addition,
under the orderly liquidation authority, claims of creditors
(including holders of our debt securities) could be satisfied
through the issuance of equity or other securities in a bridge
entity to which Group Inc.’s assets are transferred. If such a
securities-for-claims exchange were implemented, there can
be no assurance that the value of the securities of the bridge
entity would be sufficient to repay or satisfy all or any part
of the creditor claims for which the securities were
exchanged. While the FDIC has issued regulations to
implement the orderly liquidation authority, not all aspects
of how the FDIC might exercise this authority are known
and additional rulemaking is likely.
The ultimate impact of the recently proposed rules
requiring U.S. G-SIBs to maintain minimum amounts
of long-term debt meeting specified eligibility
requirements is uncertain.
On October 30, 2015, the Federal Reserve Board released
for comment proposed rules (the TLAC Rules) that would
require the eight U.S. G-SIBs, including Group Inc., among
other things, to maintain minimum amounts of long-term
debt (i.e., debt having a maturity greater than one year from
issuance (LTD)) satisfying certain eligibility criteria
commencing January 1, 2019. As proposed, the TLAC
Rules would disqualify from eligible LTD, among other
instruments, senior debt securities that permit acceleration
for reasons other than insolvency or payment default, as
well as debt securities defined as structured notes in the
TLAC Rules (e.g., many of our indexed debt securities) and
debt securities not governed by U.S. law. The currently
outstanding senior LTD of U.S. G-SIBs, including Group
Inc., typically permits acceleration for reasons other than
insolvency or payment default and, as a result, neither such
outstanding senior LTD nor any subsequently issued senior
LTD with similar terms, would qualify as eligible LTD
under the proposed rules. The Federal Reserve Board has
requested comment on whether currently outstanding
instruments should be allowed to count as eligible LTD
“despite containing features that would be prohibited
under the proposal.” The U.S. G-SIBs, including Group
Inc., may need to take steps to come into compliance with
the final TLAC Rules depending in substantial part on the
ultimate eligibility requirements for senior LTD and any
grandfathering provisions. Non-U.S. regulators are
considering similar requirements. See “Business —
Regulation — Banking Supervision and Regulation —
Total Loss-Absorbing Capacity” in Part I, Item 1 of the
2015 Form 10-K for more information about the Federal
Reserve Board’s proposed rules on loss-absorbency
requirements.
In addition, certain jurisdictions, including the United
Kingdom and the EU, have implemented, or are
considering, changes to resolution regimes to provide
resolution authorities with the ability to recapitalize a
failing entity by writing down its unsecured debt or
converting its unsecured debt into equity. Such “bail-in”
powers are intended to enable the recapitalization of a
failing institution by allocating losses to its shareholders
and unsecured debt holders. U.S. and non-U.S. regulators
are also considering requirements that certain subsidiaries
of large financial institutions maintain minimum amounts
of total loss-absorbing capacity that would pass losses up
from the subsidiaries to the top-tier holding company and,
ultimately, to security holders of the top-tier holding
company in the event of failure.
36 Goldman Sachs 2015 Form 10-K