Goldman Sachs 2007 Annual Report Download - page 70

Management’s Discussion and Analysis
Market risk limits are monitored by the Finance Division and
are reviewed regularly by the appropriate risk committee. Limit
violations are reported to the appropriate risk committee and
business unit managers and addressed, as necessary. Credit risk
limits are also monitored by the Finance Division and reviewed
by the appropriate risk committee.
BUSINESS PRACTICES COMMITTEE. The Business Practices
Committee assists senior management in its oversight of
compliance and operational risks and related reputational
concerns, seeks to ensure the consistency of our policies,
practices and procedures with our Business Principles, and
makes recommendations on ways to mitigate potential risks.
FIRMWIDE CAPITAL COMMITTEE. The Firmwide Capital
Committee reviews and approves transactions involving
commitments of our capital. Such capital commitments
include, but are not limited to, extensions of credit, alternative
liquidity commitments, certain bond underwritings and certain
distressed debt and principal finance activities. The Firmwide
Capital Committee is also responsible for establishing business
and reputational standards for capital commitments and
seeking to ensure that they are maintained on a global basis.
COMMITMENTS COMMITTEE. The Commitments Committee
reviews and approves underwriting and distribution activities,
primarily with respect to offerings of equity and equity-related
securities, and sets and maintains policies and procedures
designed to ensure that legal, reputational, regulatory and
business standards are maintained in conjunction with these
activities. In addition to reviewing specific transactions, the
Commitments Committee periodically conducts strategic
reviews of industry sectors and products and establishes
policies in connection with transaction practices.
CREDIT POLICY COMMITTEE. The Credit Policy Committee
establishes and reviews broad credit policies and parameters
that are implemented by the Credit Department.
FINANCE COMMITTEE. The Finance Committee establishes and
oversees our liquidity policies, sets certain inventory position
limits and has oversight responsibility for liquidity risk, the size
and composition of our balance sheet and capital base, and our
credit ratings. The Finance Committee regularly reviews our
funding position and capitalization and makes adjustments in
light of current events, risks and exposures.
NEW PRODUCTS COMMITTEE. The New Products Committee,
under the oversight of the Firmwide Risk Committee, is
responsible for reviewing and approving new products and
businesses globally.
OPERATIONAL RISK COMMITTEE. The Operational Risk
Committee provides oversight of the ongoing development and
implementation of our operational risk policies, framework
and methodologies, and monitors the effectiveness of operational
risk management.
Risk Management
Management believes that effective risk management is of primary
importance to the success of Goldman Sachs. Accordingly, we
have a comprehensive risk management process to monitor,
evaluate and manage the principal risks we assume in conducting
our activities. These risks include market, credit, liquidity,
operational, legal and reputational exposures.
Risk Management Structure
We seek to monitor and control our risk exposure through
a variety of separate but complementary financial, credit,
operational, compliance and legal reporting systems. In addition,
a number of committees are responsible for monitoring risk
exposures and for general oversight of our risk management
process, as described further below. These committees (including
their subcommittees), meet regularly and consist of senior
members of both our revenue-producing units and departments
that are independent of our revenue-producing units.
Segregation of duties and management oversight are fundamental
elements of our risk management process. In addition to the
committees described below, functions that are independent of
the revenue-producing units, such as Compliance, Finance,
Legal, Management Controls (Internal Audit) and Operations,
perform risk management functions, which include monitoring,
analyzing and evaluating risk.
MANAGEMENT COMMITTEE. All risk control functions ultimately
report to our Management Committee. Through both direct
and delegated authority, the Management Committee approves
all of our operating activities and trading risk parameters.
RISK COMMITTEES. The Firmwide Risk Committee reviews the
activities of existing trading businesses, approves new businesses
and products, approves firmwide market risk limits, reviews
business unit market risk limits, approves market risk limits
for selected sovereign markets and business units, approves
sovereign credit risk limits and credit risk limits by ratings
group, and reviews scenario analyses based on abnormal or
“catastrophic” market movements.
The Divisional Risk Committee sets market risk limits for our
trading activities subject to overall firmwide risk limits, based on
a number of measures, including VaR, stress tests and scenario
analyses. Several other committees oversee various risk, valuation,
operational, credit and business practice issues related to our
asset management business.
Business unit risk limits are established by the various risk
committees and may be further allocated by the business unit
managers to individual trading desks. Trading desk managers
have the first line of responsibility for managing risk within
prescribed limits. These managers have in-depth knowledge of
the primary sources of risk in their respective markets and the
instruments available to hedge their exposures.
68 Goldman Sachs 2007 Annual Report