Goldman Sachs 2015 Annual Report Download - page 91

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
The table below presents GSI’s minimum required ratios as
of December 2015, as well as the minimum required ratios
that became effective in January 2016.
December 2015
Minimum Ratio
January 2016
Minimum Ratio
CET1 ratio 6.1% 6.6%
Tier 1 capital ratio 8.2% 8.5%
Total capital ratio 10.9% 11.2%
The minimum ratios in the table above incorporate capital
guidance received from the PRA and could change in the
future. GSI’s future capital requirements may also be
impacted by developments such as the introduction of
capital buffers as described above in “Minimum Capital
Ratios and Capital Buffers.”
As of December 2015, GSI had a CET1 ratio of 12.9%, a
Tier 1 capital ratio of 12.9% and a Total capital ratio of
17.6%. Each of these ratios includes approximately 70 bps
attributable to unaudited results for the year ended
December 2015. These ratios will be finalized upon the
completion of the 2015 GSI audit. As of December 2014,
GSI had a CET1 ratio of 9.7%, a Tier 1 capital ratio of
9.7% and a Total capital ratio of 12.7%. The ratios for
both December 2015 and December 2014 reflect the
applicable transitional provisions.
CRD IV, as amended by the European Commission
Delegated Act (the Delegated Act), introduced a new
leverage ratio, which compares CRD IV’s definition of
Tier 1 capital to a measure of leverage exposure, defined as
the sum of assets less Tier 1 capital deductions plus certain
off-balance-sheet exposures, including a measure of
derivatives exposures, securities financing transactions and
commitments. The Delegated Act does not currently
include a minimum leverage ratio requirement; however,
the Basel Committee has proposed a minimum requirement
of 3%. Any required minimum ratio is expected to become
effective for GSI on January 1, 2018. As of December 2015,
GSI had a leverage ratio of 3.6%. This leverage ratio is
based on our current interpretation and understanding of
this rule and may evolve as we discuss its interpretation and
application with GSI’s regulators.
Other Subsidiaries. We expect that the capital
requirements of several of our subsidiaries are likely to
increase in the future due to the various developments
arising from the Basel Committee, the Dodd-Frank Act, and
other governmental entities and regulators. See Note 20 to
the consolidated financial statements for information about
the capital requirements of our other regulated subsidiaries.
Subsidiaries not subject to separate regulatory capital
requirements may hold capital to satisfy local tax and legal
guidelines, rating agency requirements (for entities with
assigned credit ratings) or internal policies, including
policies concerning the minimum amount of capital a
subsidiary should hold based on its underlying level of risk.
In certain instances, Group Inc. may be limited in its ability
to access capital held at certain subsidiaries as a result of
regulatory, tax or other constraints. As of December 2015
and December 2014, Group Inc.’s equity investment in
subsidiaries was $85.52 billion and $79.70 billion,
respectively, compared with its total shareholders’ equity of
$86.73 billion and $82.80 billion, respectively.
Our capital invested in non-U.S. subsidiaries is generally
exposed to foreign exchange risk, substantially all of which
is managed through a combination of derivatives and non-
U.S. denominated debt. See Note 7 to the consolidated
financial statements for information about our net
investment hedges, which are used to hedge this risk.
Guarantees of Subsidiaries. Group Inc. has guaranteed
the payment obligations of GS&Co., GS Bank USA, and
Goldman Sachs Execution & Clearing, L.P. (GSEC), in
each case subject to certain exceptions. In November 2008,
Group Inc. contributed subsidiaries into GS Bank USA, and
Group Inc. agreed to guarantee certain losses, including
credit-related losses, relating to assets held by the
contributed entities.
Regulatory Developments
Our businesses are subject to significant and evolving
regulation. The Dodd-Frank Act, enacted in July 2010,
significantly altered the financial regulatory regime within
which we operate. In addition, other reforms have been
adopted or are being considered by regulators and policy
makers worldwide. We expect that the principal areas of
impact from regulatory reform for us will be increased
regulatory capital requirements and increased regulation
and restriction on certain activities. However, given that
many of the new and proposed rules are highly complex,
the full impact of regulatory reform will not be known until
the rules are implemented and market practices develop
under the final regulations.
Goldman Sachs 2015 Form 10-K 79