Goldman Sachs 2015 Annual Report Download - page 88

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
As of December 2014, we calculated our CET1, Tier 1
capital and Total capital ratios using the Revised Capital
Framework for regulatory capital, but RWAs were
calculated in accordance with (i) the Basel I Capital Accord
of the Basel Committee, incorporating the market risk
requirements set out in the Revised Capital Framework,
and adjusted for certain items related to capital deductions
and for the phase-in of capital deductions (Hybrid Capital
Rules), and (ii) the Basel III Advanced Rules. The lower of
each ratio calculated in (i) and (ii) was the ratio against
which our compliance with minimum ratio requirements
was assessed. Each of the ratios calculated in accordance
with the Basel III Advanced Rules was lower than that
calculated in accordance with the Hybrid Capital Rules and
therefore the Basel III Advanced ratios were the ratios that
applied to us as of December 2014.
See Note 20 to the consolidated financial statements for
further information about our capital ratios as of
December 2015 and December 2014, and for additional
information about the Revised Capital Framework.
Minimum Capital Ratios and Capital Buffers
The table below presents our minimum required ratios as of
December 2015, as well as the minimum ratios that we
expect will apply at the end of the transitional provisions
beginning January 2019.
December 2015
Minimum Ratio 1
January 2019
Minimum Ratio
CET1 ratio 4.5% 10.0% 4
Tier 1 capital ratio 6.0% 11.5% 4
Total capital ratio 8.0% 313.5% 4
Tier 1 leverage ratio 24.0% 4.0%
1. Does not reflect the capital conservation buffer or Global Systemically
Important Banks (G-SIBs) surcharge described below.
2. Tier 1 leverage ratio is defined as Tier 1 capital divided by quarterly average
adjusted total assets (which includes adjustments for goodwill and
identifiable intangible assets, and certain investments in nonconsolidated
financial institutions).
3. In order to meet the quantitative requirements for being “well-capitalized”
under the Federal Reserve Board’s regulations, we must meet a higher
required minimum Total capital ratio of 10.0%.
4. Includes the capital conservation buffer of 2.5% and a preliminary G-SIB
surcharge of 3.0% estimated by the Federal Reserve Board under the
methodology described below.
Under the Revised Capital Framework, the minimum
CET1, Tier 1 capital, and Total capital ratios will be
supplemented by a capital conservation buffer, consisting
entirely of capital that qualifies as CET1, that phases in
beginning on January 1, 2016, in increments of 0.625% per
year until it reaches 2.5% of RWAs on January 1, 2019.
In July 2015, the Federal Reserve Board approved a final
rule establishing a capital surcharge for U.S. G-SIBs
(generally higher than that required by the Basel
Committee) to be implemented as an extension of the U.S.
capital conservation buffer. This surcharge will be phased-
in ratably, beginning in 2016, becoming fully effective on
January 1, 2019, and must consist entirely of capital that
qualifies as CET1. The surcharge must be calculated using
two methodologies, the higher of which will be reflected in
our minimum risk-based capital ratios. The first calculation
is based upon the Basel Committee’s methodology which,
among other factors, relies upon measures of the size,
activity and complexity of each G-SIB (Method One). The
second calculation uses similar inputs, but it includes a
measure of each firm’s reliance on short-term wholesale
funding (Method Two). The Federal Reserve Board has
indicated that its preliminary estimate of our G-SIB
surcharge is 3.0%, based on the Method Two calculation
using financial data as of December 2014. The surcharge
becomes applicable to us beginning in 2016 on a phased-in
basis, and will be updated annually based on financial data
as of the end of the prior year. We currently estimate that,
based on information as of December 2015, we are at or
near the threshold for a lower G-SIB surcharge. However,
the surcharge in the future may differ from the estimate
above due to additional guidance from our regulators and/
or positional changes.
The Revised Capital Framework also provides a counter-
cyclical capital buffer of up to 2.5% (and also consisting
entirely of CET1) in order to counteract excessive credit
growth. The Federal Reserve Board has not finalized all of
the regulations with respect to this buffer and the table
above does not reflect this buffer.
Our regulators could change these buffers in the future. As
a result, the minimum ratios we are subject to as of
January 1, 2019 could be higher than the amounts
presented in the table above.
Our minimum required supplementary leverage ratio will
be 5.0% on January 1, 2018. See “Supplementary Leverage
Ratio” below for further information.
76 Goldman Sachs 2015 Form 10-K