Goldman Sachs 2002 Annual Report Download - page 49

C A P I T A L C O M M I T T E E –The Capital Committee reviews
and approves all transactions involving commitments of
our capital. Such capital commitments include extensions
of credit, liquidity commitments, bond underwritings,
and other unusual financing structures and transactions
that involve significant capital exposure. The Capital
Committee is also responsible for ensuring that business
and reputational standards for capital commitments are
maintained on a global basis.
C O M M I T M E N T S C O M M I T T E E –The Commitments Com-
mittee reviews and approves our underwriting and distri-
bution activities and sets and maintains policies and
procedures designed to ensure that legal, reputational,
regulatory, and business standards are maintained in con-
junction with these activities. In addition to reviewing
specific transactions, the Commitments Committee peri-
odically conducts strategic reviews of industry sectors
and products and establishes policies in connection with
transaction practices.
C R E D I T P O L I C Y C O M M I T T E E –The Credit Policy
Committee establishes and reviews broad credit policies
and parameters that are implemented by the Credit
Department.
O P E R A T I O N A L R I S K C O M M I T T E E –The Operational Risk
Committee provides oversight of the ongoing develop-
ment and implementation of our operational risk poli-
cies, framework and methodologies, and monitors the
effectiveness of operational risk management.
F I N A N C E C O M M I T T E E –The Finance Committee is respon-
sible for oversight of our capital, liquidity and funding
needs and for setting certain inventory position limits.
Segregation of duties and management oversight are fun-
damental elements of our risk management process. In
addition to the committees described above, departments
that are independent of the revenue-producing units, such
as the Firmwide Risk, Credit, Controllers, Treasury,
Global Operations, Compliance, Management Controls
(Internal Audit) and Legal departments, in part perform
risk management functions, which include monitoring,
analyzing and evaluating risk. Furthermore, the
Controllers Department, in conjunction with the
Firmwide Risk Department, independently reviews, on a
regular basis, internal valuation models and the pricing of
positions determined by individual business units.
Risk Limits
Business unit risk limits are established by the various
risk committees and may be further allocated by the busi-
ness unit managers to individual trading desks.
Market risk limits are monitored on a daily basis by the
Firmwide Risk Department, and are reviewed regularly
by the appropriate risk committee. Limit violations are
reported to the appropriate risk committee and the
appropriate business unit managers.
Inventory position limits are monitored by the
Controllers Department and position limit violations are
reported to the appropriate business unit managers, the
Finance Committee and the appropriate risk committee.
Market Risk
The potential for changes in the market value of our trad-
ing positions is referred to as “market risk.” Our trading
positions result from underwriting, market-making, spe-
cialist and proprietary trading activities.
Categories of market risk include exposures to interest
rates, equity prices, currency rates and commodity
prices. A description of each market risk category is set
forth below:
•Interest rate risks primarily result from exposures to
changes in the level, slope and curvature of the yield
curve, the volatility of interest rates, mortgage pre-
payment speeds and credit spreads.
•Equity price risks result from exposures to changes
in prices and volatilities of individual equities,
equity baskets and equity indices.
•Currency rate risks result from exposures to
changes in spot prices, forward prices and volatili-
ties of currency rates.
•Commodity price risks result from exposures to
changes in spot prices, forward prices and volatili-
ties of commodities, such as electricity, natural gas,
crude oil, petroleum products, and precious and
base metals.
Managem ent’s D iscussion and A nalysis
GO L D M A N SA CH S 2002 A N N UAL R EPO RT 47