Goldman Sachs 2009 Annual Report Download - page 79

together with a qualitative assessment of the condition of the
 nancial markets and of Goldman Sachs.
▪ Asset-Liability Management. Our funding strategy includes
an assessment of the overall characteristics of our assets
with respect to their anticipated holdingperiods and
potential illiquidity in a stressed environment. In addition,
we manage the maturities and diversity of our secured and
unsecured funding liabilities across markets, products
and counterparties, and we seek to maintain liabilities of
appropriate term relative to our asset base.
▪ Contingency Funding Plan (CFP). We maintain a CFP
to help identify, measure, monitor and mitigate liquidity
and funding risk. The CFP considers various risk factors
that could occur during a crisis and provides a framework
for analyzing and responding to a liquidity crisis.
EXCESS LIQUIDITY
Our most important liquidity policy is to pre-fund what
we estimate will be our potential cash needs during a
liquidity crisis and hold such excess liquidity in the form of
unencumbered, highly liquid securities that may be sold or
pledged to provide same-day liquidity. This “Global Core
Excess” is intended to allow us to meet immediate obligations
without needing to sell other assets or depend on additional
funding from credit-sensitive markets. We believe that this
pool of excess liquidity provides us with a resilient source of
funds and gives us signi cant  exibility in managing through
a dif cult funding environment. Our Global Core Excess
re ects the following principles:
▪
The  rst days or weeks of a liquidity crisis are the most
critical to a company’s survival.
▪
Focus must be maintained on all potential cash and
collateral out ows, not just disruptions to  nancing  ows.
Our businesses are diverse, and our cash needs are driven
by many factors, including market movements, collateral
requirements and client commitments, all of which can
change dramatically in a dif cult funding environment.
▪
During a liquidity crisis, credit-sensitive funding, including
unsecured debt and some types of secured  nancing
agreements, may be unavailable, and the terms or
availability of other types of secured  nancing may change.
▪
As a result of our policy to pre-fund liquidity that
we estimate may be needed in a crisis, we hold more
unencumbered securities and have larger debt balances than
our businesses would otherwise require. We believe that our
liquidity is stronger with greater balances of highly liquid
unencumbered securities, even though it increases our total
assets, and our funding costs.
The size of our Global Core Excess is based on an internal
liquidity model together with a qualitative assessment of
the condition of the  nancial markets and of Goldman
Sachs. Our liquidity model, through which we analyze the
consolidated  rm as well as our major broker-dealer and
bank depository institution subsidiaries, identi es and
estimates potential contractual and contingent cash and
collateral out ows over a short-term horizon in a liquidity
crisis, including, but not limited to:
▪
upcoming maturities of unsecured long-term debt,
promissory notes, commercial paper, term deposits and
other unsecured funding products;
▪
potential buybacks of a portion of our outstanding
unsecured funding;
▪
potential withdrawals of client deposits in our banking entities;
▪
adverse changes in the terms of, or the inability to re nance,
secured funding trades with upcoming maturities, re ecting,
among other factors, the quality of the underlying collateral
and counterparty concentration;
▪
out ows of cash or collateral associated with the
impact of market moves on our OTC derivatives, listed
derivatives and securities and loans pledged as collateral
for  nancing transactions;
▪
other out ows of cash or collateral related to derivatives,
including the impact of trade terminations, collateral
substitutions, collateral disputes, collateral calls or
termination payments (in the event of a two-notch
downgrade in our credit ratings), collateral that has not
been called by counterparties but is available to them, or
additional margin that could be requested by exchanges or
clearing houses in a stressed environment;
▪
potential liquidity out ows associated with our prime brokerage
business, including those related to customer credit balances;
▪
draws on our unfunded commitments not supported
by William Street Funding Corporation (1), with draw
assumptions varying in magnitude re ecting, among other
things, the type of commitment and counterparty, and
▪
other upcoming cash out ows, such as tax and other
large payments.
(1) The Global Core Excess excludes liquid assets of $4.31billion held
separately by William Street Funding Corporation. See Note8 to the
consolidated  nancial statements for further information regarding the
William Street credit extension program.
Goldman Sachs 2009 Annual Report
77
Management’s Discussion and Analysis