Goldman Sachs 2015 Annual Report Download - page 90

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
Supplementary Leverage Ratio
The Revised Capital Framework includes a supplementary
leverage ratio requirement for Advanced approach banking
organizations. Under amendments to the Revised Capital
Framework, the U.S. federal bank regulatory agencies
approved a final rule that implements the supplementary
leverage ratio aligned with the definition of leverage
established by the Basel Committee. The supplementary
leverage ratio compares Tier 1 capital to a measure of
leverage exposure, defined as total daily average assets for
the quarter less certain deductions plus certain off-balance-
sheet exposures, including a measure of derivatives
exposures and commitments. The Revised Capital
Framework requires a minimum supplementary leverage
ratio of 5.0% (comprised of the minimum requirement of
3.0% and a 2.0% buffer) for U.S. bank holding companies
deemed to be G-SIBs, effective on January 1, 2018.
As of December 2015 and December 2014, our
supplementary leverage ratio was 5.9% and 5.0%,
respectively, based on Tier 1 capital on a fully phased-in
basis of $79.46 billion and $73.17 billion, respectively,
divided by total leverage exposure of $1.34 trillion (total
daily average assets for the quarter of $878 billion plus
adjustments of $465 billion) and $1.45 trillion (total daily
average assets for the quarter of $873 billion plus
adjustments of $579 billion), respectively. Within total
leverage exposure, the adjustments to quarterly average
assets in both periods were primarily comprised of off-
balance-sheet exposures related to derivatives, secured
financing transactions, commitments and guarantees.
The supplementary leverage ratio was not a required
regulatory disclosure as of December 2014. Therefore, it
was a non-GAAP measure as of December 2014 and may
not be comparable to similar non-GAAP measures used by
other companies as of that date.
This supplementary leverage ratio is based on our current
interpretation and understanding of the U.S. federal bank
regulatory agencies’ final rule and may evolve as we discuss
its interpretation and application with our regulators.
Subsidiary Capital Requirements
Many of our subsidiaries, including GS Bank USA and our
broker-dealer subsidiaries, are subject to separate
regulation and capital requirements of the jurisdictions in
which they operate.
GS Bank USA. GS Bank USA is subject to regulatory
capital requirements that are calculated in substantially the
same manner as those applicable to bank holding
companies and calculates its capital ratios in accordance
with the risk-based capital and leverage requirements
applicable to state member banks, which are based on the
Revised Capital Framework. See Note 20 to the
consolidated financial statements for further information
about the Revised Capital Framework as it relates to GS
Bank USA, including GS Bank USA’s capital ratios and
required minimum ratios.
In addition, under Federal Reserve Board rules,
commencing on January 1, 2018, in order to be considered
a “well-capitalized” depository institution, GS Bank USA
must have a supplementary leverage ratio of 6.0% or
greater. The supplementary leverage ratio compares Tier 1
capital to a measure of leverage exposure, defined as total
daily average assets for the quarter less certain deductions
plus certain off-balance-sheet exposures, including a
measure of derivatives exposures and commitments. As of
December 2015, GS Bank USA’s supplementary leverage
ratio was 7.1%, based on Tier 1 capital on a fully phased-in
basis of $23.02 billion, divided by total leverage exposure
of $324 billion (total daily average assets for the quarter of
$134 billion plus adjustments of $190 billion). As of
December 2014, GS Bank USA would also have met the
“well-capitalized” minimum. This supplementary leverage
ratio is based on our current interpretation and
understanding of this rule and may evolve as we discuss
their interpretation and application with our regulators.
GSI. Our regulated U.K. broker-dealer, GSI, is one of our
principal non-U.S. regulated subsidiaries and is regulated
by the PRA and the Financial Conduct Authority. GSI is
subject to the revised capital framework for European
Union (EU)-regulated financial institutions (the fourth EU
Capital Requirements Directive and EU Capital
Requirements Regulation, collectively known as “CRD
IV”). These capital regulations are largely based on
Basel III.
78 Goldman Sachs 2015 Form 10-K