Goldman Sachs 2009 Annual Report Download - page 40

assets. Default rates, downgrades and disputes with
counterparties as to the valuation of collateral increase
signi cantly in times of market stress and illiquidity.
Although we regularly review credit exposures to speci c
clients and counterparties and to speci c industries, countries
and regions that we believe may present credit concerns,
default risk may arise from events or circumstances that are
dif cult to detect or foresee, particularly as new business
initiatives and market developments lead us to transact with a
broader array of clients and counterparties, as well as clearing
houses and exchanges, and expose us to new asset classes and
newmarkets.
We have experienced, due to competitive factors, pressure
to extend and price credit at levels that may not always fully
compensate us for the risks we take. In particular, corporate
clients seek such commitments from  nancial services  rms in
connection with investment banking and other assignments.
Operational Risk. Our businesses are highly dependent on our
ability to process and monitor, on a daily basis, a very large
number of transactions, many of which are highly complex,
across numerous and diverse markets in many currencies.
These transactions, as well as the information technology
services we provide to clients, often must adhere to client-
speci c guidelines, as well as legal and regulatory standards.
Despite the resiliency plans and facilities we have in place, our
ability to conduct business may be adversely impacted by a
disruption in the infrastructure that supports our businesses
and the communities in which we are located. This may
include a disruption involving electrical, communications,
internet, transportation or other services used by us or
thirdparties with which we conduct business.
Industry consolidation, whether among market participants or
 nancial intermediaries, increases the risk of operational failure
as disparate complex systems need to be integrated, often on an
accelerated basis. Furthermore, the interconnectivity of multiple
 nancial institutions with central agents, exchanges and
clearing houses, and the increased centrality of these entities
under proposed and potential regulation, increases the risk that
an operational failure at one institution or entity may cause an
industry-wide operational failure that could materially impact
our ability to conductbusiness.
Legal, Regulatory and Reputational Risk. We are subject to
extensive and evolving regulation in jurisdictions around the
world. Several of our subsidiaries are subject to regulatory
capital requirements and, as a bank holding company, we are
subject to minimum capital standards and a minimum Tier1
leverage ratio on a consolidated basis. Our status as a bank
holding company and the operation of our lending and other
businesses through GSBank USA subject us to additional
regulation and limitations on our activities, as described in
“Regulation — Banking Regulation” in PartI, Item 1 of our
Annual Report on Form10-K.
New regulations could impact our pro tability in the affected
jurisdictions, or even make it uneconomic for us to continue to
conduct all or certain of our businesses in such jurisdictions,
or could cause us to incur signi cant costs associated with
changing our business practices, restructuring our businesses,
moving all or certain of our businesses and our employees
to other locations or complying with applicable capital
requirements, including liquidating assets or raising capital
in a manner that adversely increases our funding costs or
otherwise adversely affects our shareholders and creditors. To
the extent new laws or regulations or changes in enforcement
of existing laws or regulations are imposed on a limited subset
of  nancial institutions, this could adversely affect our ability
to compete effectively with other institutions that are not
affected in the same way.
A Financial Crisis Responsibility Fee to be assessed on the
largest  nancial  rms by the U.S. government was proposed
on January 14, 2010. However, since this is still in the
proposal stage and has not been approved by Congress,
details surrounding the fee have not been  nalized. We are
currently evaluating the impact of the proposal on our results
of operations. The impact of the proposal, if any, will be
recorded when it is ultimately enacted.
Substantial legal liability or a signi cant regulatory action
against us, or adverse publicity, governmental scrutiny or
legal and enforcement proceedings regardless of the ultimate
outcome, could have material adverse  nancial effects, cause
signi cant reputational harm to us or adversely impact
the morale and performance of our employees, which in
turn could seriously harm our businesses and results of
operations. We face signi cant legal risks in our businesses,
and the volume of claims and amount of damages and
penalties claimed in litigation and regulatory proceedings
against  nancial institutions remain high. Our experience
has been that legal claims by customers and clients increase
in a market downturn and that employment-related claims
increase inperiods when we have reduced the total number of
employees. For a discussion of how we account for our legal
and regulatory exposures, see “— Use of Estimates” below.
Goldman Sachs 2009 Annual Report
38
Management’s Discussion and Analysis