Goldman Sachs 2009 Annual Report Download - page 98

Goldman Sachs 2009 Annual Report
96
Notes to Consolidated Financial Statements
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Resale and Repurchase Agreements. Securities purchased
under agreements to resell and securities sold under
agreements to repurchase, principally U.S. government,
federal agency and investment-grade sovereign obligations,
represent collateralized  nancing transactions. The  rm
receives securities purchased under agreements to resell,
makes delivery of securities sold under agreements to
repurchase, monitors the market value of these securities
on a daily basis and delivers or obtains additional collateral
as appropriate. As noted above, resale and repurchase
agreements are carried in the consolidated statements of
 nancial condition at fair value under the fair value option.
Resale and repurchase agreements are generally valued
based on inputs with reasonable levels of price transparency
and are generally classi ed within level2 of the fair
valuehierarchy.
▪
Securities Borrowed and Loaned. Securities borrowed and
loaned are generally collateralized by cash, securities or
letters of credit. The  rm receives securities borrowed,
makes delivery of securities loaned, monitors the market
value of securities borrowed and loaned, and delivers or
obtains additional collateral as appropriate. Securities
borrowed and loaned within Securities Services, relating to
both customer activities and, to a lesser extent, certain  rm
 nancing activities, are recorded based on the amount of
cash collateral advanced or received plus accrued interest.
As these arrangements generally can be terminated on
demand, they exhibit little, if any, sensitivity to changes
in interest rates. As noted above, securities borrowed and
loaned within Trading and Principal Investments, which are
related to the  rm’s matched book and certain  rm  nancing
activities, are recorded at fair value under the fair value
option. These securities borrowed and loaned transactions
are generally valued based on inputs with reasonable levels
of price transparency and are classi ed within level2 of the
fair valuehierarchy.
▪
Other Secured Financings. In addition to repurchase
agreements and securities loaned, the  rm funds assets
through the use of other secured  nancing arrangements and
pledges  nancial instruments and other assets as collateral
in these transactions. As noted above, the  rm has elected
to apply the fair value option to transfers accounted for
as  nancings rather than sales, debt raised through the
 rm’s William Street credit extension program and certain
other nonrecourse  nancings, for which the use of fair
value eliminates non-economic volatility in earnings that
would arise from using different measurement attributes.
These other secured  nancing transactions are generally
classi ed within level2 of the fair value hierarchy. Other
secured  nancings that are not recorded at fair value are
recorded based on the amount of cash received plus accrued
interest. See Note3 for further information regarding other
secured nancings.
Hybrid Financial Instruments. Hybrid  nancial instruments are
instruments that contain bifurcatable embedded derivatives
and do not require settlement by physical delivery of non-
 nancial assets (e.g.,physical commodities). If the  rm elects
to bifurcate the embedded derivative from the associated
debt, it is accounted for at fair value and the host contract
is accounted for at amortized cost, adjusted for the effective
portion of any fair value hedge accounting relationships. If
the  rm does not elect to bifurcate, the entire hybrid  nancial
instrument is accounted for at fair value under the fair value
option. See Notes 3 and 6 for further information regarding
hybrid  nancial instruments.
Transfers of Financial Assets. In general, transfers of
 nancial assets are accounted for as sales when the  rm
has relinquished control over the transferred assets. For
transfers accounted for as sales, any related gains or losses are
recognized in net revenues. Transfers that are not accounted
for as sales are accounted for as collateralized  nancings,
with the related interest expense recognized in net revenues
over the life of the transaction. See “— Recent Accounting
Developments” below for information regarding amendments
to accounting for transfers of  nancial assets.
Commissions. Commission revenues from executing
and clearing client transactions on stock, options and
futures markets are recognized in “Trading and principal
investments” in the consolidated statements of earnings on a
trade-date basis.
Insurance Activities. Certain of the  rm’s insurance and
reinsurance contracts are accounted for at fair value under
the fair value option, with changes in fair value included in
“Trading and principal investments” in the consolidated
statements of earnings.
Revenues from variable annuity and life insurance and
reinsurance contracts not accounted for at fair value
generally consist of fees assessed on contract holder account