Company Overview

•Leading global investment banking securities and

investment management firm
•Provide a wide range of financial services to a client
base that includes corporations, financial
institutions, governments and individuals
•As of December 2016, had offices in over 30
countries
•47% of total staff was based outside the Americas
•40% of their net revenues outside the Americas.
FINANCIAL OVERVIEW
INCOME SHEET
NET REVENUES
OPERATING
EXPENSES
SEGMENT
OPERATING RESULTS
 Note 25 - Geographic Information
• Due to the highly integrated nature of international financial markets, the firm
manages its businesses based on the profitability of the enterprise as a whole
• The methodology for allocating profitability to geographic regions is dependent on
estimates and management judgment because a significant portion of the firm’s
activities require cross-border coordination in order to facilitate the needs of the firm’s
clients
• Geographic results are generally allocated as follows:
• Investment Banking: location of the client and investment banking team.
• Institutional Client Services: Fixed Income, Currency and Commodities Client Execution,
and Equities (excluding Securities Services): location of the market-making desk;
Securities Services: location of the primary market for the underlying security.
• Investing & Lending: Investing: location of the investment; Lending: location of the
client.
• Investment Management: location of the sales team.
 Investment Banking
•Serve corporate and government clients around the
world
•Provide financial advisory services
•Help companies raise capital
•Try to develop and maintain long term relationships
•Goal: deliver to the clients the entire resources of
the firm
 Financial Advisory
•Strategic advisory assignments
•Help clients execute large, complex transactions
•Revenues from derivative transactions
•Assist the clients in managing their asset and
liability exposure and their capital
•Provide lending commitments and bank loan
•Bridge loan facilities
 Underwriting
•Helping companies raise capital to fund their
businesses
•Match the capital of the investing clients with the
needs of the client
•Public offerings and private placements
•Revenues from derivative transactions
 Equity Underwriting
Leading position in:
•Worldwide public common stock offerings
•Worldwide initial public offerings
 Debt Underwriting
•Investment-grade
•High yield debt
•Bank loans
•Bridge loans
•Emerging and growth-market debt
•Structured securities (mortgage-related securities)
 Institutional Client Services
•Helps clients to buy and sell financial products, raise
funding and manage risk
•Acts as a market maker
•Offers market expertise
•Makes markets and facilitates client transactions in:
O Fixed income, equity, currency, and
commodity products
Institutional Client Services
•Prices to clients globally are provided
•Clear client transactions
•Willingness to make markets is crucial
•Provides liquidity
•Play a critical role in price discovery (efficiency of the capital marke
•Relationships with clients are maintained
 Institutional Client Services
Four ways to generate revenues:
•In large, highly liquid markets: high volume of transactions for
modest spread and fees
•In less liquid markets: transactions for larger spread and fees
•Customized or tailor-made products that address the client's risk
exposures, investment objectives or other complex needs
•Financing to the clients is provided
 Institutional Client Services

The activities are organized by asset classes

including:
●Cash instruments: trading the underlying
instrument
●Derivative instruments: derive their value from
underlying asset prices, indices, reference rates, or
other inputs
 Fixed Income, Currency and
Commodities Client Execution
Equities client execution:

•Facilitates client transactions by providing liquidity with large blocks of stocks o

options

•Engagement in insurance activities

•Structure and execute derivatives on indices, industry groups, financial

measures and individual company stocks

•Developing of strategies and portfolio hedging and restructuring

•Asset allocation transactions

•Creation of tailored instruments to establish or undertake hedging strategies

 Fixed Income, Currency and
Commodities Client Execution
Commissions and fees:
•Generated from executing and clearing institutional client
transactions on major stock, options and futures exchanges
•Access to electronic “low touch” equity trading platforms
•Most of the revenues continued to be derived from the
“high-touch” handling
 Fixed Income, Currency and
Commodities Client Execution
Securities services:
•Financial services: through margin loans collateralized by
securities and cash or collateral
•Securities lending services: borrowing and lending securities
•Other prime brokerage services: provide clearing, settlement
and custody services, technology platform is provided
 Investing and Lending

•Long-term activities

•Investing directly in publicly and privately traded securities and loans

•Managing diversified global portfolio of investments in equity securities and

debt

•Provide financing to clients through bank loans, personal loans and mortgages

•Equity-related investments
 Investment Management
•Provides investment and wealth advisory services to help clients
preserve and grow their financial assets

•Managing client assets

•Income and liability management

•Trust and estate planning

•Philanthropic giving and tax planning

•Use global securities and derivative market-making capabilities to

address the clients' needs
Management and Other Fees
•Fees vary by asset class and affected by investment
performance, asset inflows and redemptions
•Assets under supervision: earn a fee for managing assets on
a discretionary basis
•Incentive Fees: when a return exceeds a specific benchmark
 Business Continuity Program
•Business continuity and information security are high priorities

•Key elements of the program:

•Crisis planning and management

•People recovery

•Business recovery

•System and data recovery

•Process improvement
Employees and Competition
•Strive to maintain a work environment of professionalism,
excellence, diversity and cooperation among employees
•Competitors are other entities that provide investment banking,
securities and investment management services (brokers,
dealers, investment advisors)
•Advantages are taken from competing successfully with larger
financial institutions (which have more capital and stronger
local presence)
•Competition in attracting and retaining qualified employees
 Regulation
•Dodd-Frank Act: enacted in July 2010, provides extension
on the rules adopted by the Federal Reserve Board
•Supervision and examination by the Federal Reserve Board
•BHC Act restricts bank holding companies from engaging
in business activities
•Fed board has the authority to limit the ability to conduct
activities and it is necessary its approval before engaging
in financial activities
•The Volcker Rule prohibits “proprietary trading”,
sponsorship of “covered funds” and investment in hedge
 Regulation
• The Dodd-Frank Act, and the rules thereunder, significantly altered the
financial regulatory regime within which GS operates
• The capital, liquidity and leverage ratios based on the Basel Committee’s
final capital framework for strengthening international capital standards
(Basel III), as implemented by the Federal Reserve, the PRA and FCA and
other national regulators have also had a significant impact on GS
businesses
• The implications of such regulations for our businesses continue to depend
largely on their implementation by the relevant regulators globally, as well
as the development of market practices and structures under the regime
established by such regulations
• Other reforms have been adopted or are being considered by regulators and
policy makers worldwide
• The Basel Committee is the primary global standard setter for prudential
 The Volcker Rule
•Is expected to limit certain kind of transactions with the
sponsored funds
•Many aspects remain unclear and very complex
•In October 2011 the rules to implement the Volcker Rule
were issued
•The Volcker Rule limitation on investments in hedge funds
and private equity funds required to reduce investments
to 3% or less
Capital and Liquidity Requirements

•As a bank holding company, Goldman Sachs is subject to

consolidated regulatory capital requirements by fed
board
•In January 2016, the Basel Committee finalized a revised
framework for calculating minimum capital
requirements for market risk
Payments of Dividends and Stock
Repurchases

•Subject to the oversight of the fed board based on

capital plans and stress tests to judge the capital
planning processes
•The amount of dividends that may be paid by GS is
limited to the lesser of the amounts calculated under
a “recent earnings” test and an “undivided profits”
test
 Compensation Practices
•Oversight by the fed board
•Risk must be taken in account
•Incentives that balance risk and financial results
•Review of the incentive compensation policies
•Enforcement actions taken against the risk of the organization's safet
caused by related risk management
•If the regulations are adopted the flexibility will be restricted
 Regulation of GS Bank USA

•Undertake stress test is required, according to Dodd-

frank act and conducted by the fed board
•“Derivative push-out” will prevent GS from conducting
certain swaps-related activities
•Transactions between GS bank USA and its subsidiaries
are regulated by the fed board
Prompt Corrective Actions and
Capital Ratios
•The US Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDCIA) establishes 5 capital categories:
•Well-capitalized depositary institution: if it has a tier 1 capital
ratio of at least 6%, a total capital ratio of at least 10% and a
tier 1 leverage ratio of at least 5%
•Adequately capitalized
•Undercapitalized
•Significantly undercapitalized
•Critically undercapitalized
Insolvency of an Insured Depository
Institution
•Transfer the depository institution's
assets and liabilities to a new obligor
•Enforce the terms of the depository
institution's contracts
•Repudiation of any contracts to which
the institution is a Party
 Broker-Dealer and Securities
Regulation
• Broker-dealer subsidiaries are subject to regulations
that cover all aspects of the securities business
• It is required to maintain orderly markets in the
securities assigned
• According to the Dodd-Frank Act, any person who
organizes an asset-backed security transaction to retain
a portion of any credit risk that the person conveys with
a third party
Swap, Derivatives and Commodities
Regulations
•Subject to regulation of the US Commodity Exchange Act
•The Dodd-Frank Act provides increased regulation, imposing the
following requirements:
• Real time public and regulatory reporting of trade information for
swaps
• Registration of swap dealers
• Position limits the cap exposure to derivatives on certain physical
commodities
• Mandated clearing through central counterparties for certain
swaps
• New business conduct standards for swap dealers
• Margin requirements for trades that are not cleared
• Entity level capital requirements for swap dealers
 Other Regulations

Some examples...
•Insurance subsidiaries: subject to state insurance
regulation in the states in which they are domiciled
•Investment management: subject to significant
regulation in numerous jurisdictions around the
world
 The Basel Capital Accord
• The Basel Capital Accord is a Framework set at the Basel
Committee in 1988 and subsequently revised.
• The primary objectives are to promote the soundness of the
international banking system and to provide an equitable basis
for international cooperation among banks
 Basel I
• Basel I is the round of deliberations by central bankers from around
the world, and in 1988, by the Basel Committee on Banking
Supervision in Basel, Switzerland, published a set of minimum
capital requirements for banks.
• This was also known as the 1988 Basel Accord, and was enforced by
law in the Group of Ten (G-10) countries in 1992
• Primarily focused on credit risk and appropriate risk-weighting of
assets.
 Basel 1A
• Basel IA was proposed as an intermediate between the
current Basel I accord and the Basel II accord that is being
implemented. Basel IA would have been more risk sensitive
than Basel I but would not be as complex as the advanced
approach under Basel II.

• It was decided to drop the proposed Basel 1A and allow Basel

II standardized in its place.
 Basel II
• Basel II was published in June 2004 and intended to amend
international standards that controlled how much capital banks
need to hold to guard against the financial and operational risks
banks face. These rules sought to ensure thtat the greate the risk to
which a bank is exposed, the greater the amount of capital the
banks needs to hold to safeguard its solvency and economic
stability.
• Basel II uses a “three pillars” concept
1.Minimum capital requirements
2.Supervisory review
3.Market discipline
 Basel III
• The third installment of the Basel Accords was developed in
response to the deficitancies in financial regulation revealed by the
financial crisis of 2007-08. Basel III is intended to strengthen bank
capital requirements by increasing liquidity and decreasing bank
leverage.
• Tier 1 capital requirements increases from 4% in Basel II to 6%
• In July 2014, the U.S. Federal Reserve announced that the minimum
Basel III leverage ratio would be 6% for 8 systemically important
financial institution (SIFI) banks and 5% for their uninsured bank
holding companies
RISK MANAGEMENT ENVIRONMENT
 Dodds Frank Stress Test Disclosure
These results incorporate the following capital action assumptions, as prescribed
by the Federal Reserve Board’s DFAST rules:
actual capital actions for the first quarter of 2017; and for each of the remaining
quarters in the planning horizon:

• common stock dividends equal to the quarterly average dollar amount of

common stock dividends that were paid in the second quarter of 2016
through and including the first quarter of 2017; and

• payments on any other instrument that is eligible for inclusion in the

numerator of a regulatory capital ratio equal to the stated dividend, interest,
or principal due on such instrument during the quarter.
 Broker-Dealer and Securities Regulation
• Our broker-dealer subsidiaries are subject to regulations that cover
all aspects of the securities business, including sales methods, trade
practices, use and safekeeping of clients’ funds and securities,
capital structure, recordkeeping, the financing of clients’ purchases,
and the conduct of directors, officers and employees. In the United
States, the SEC is the federal agency responsible for the
administration of the federal securities laws. GS&Co. is registered as
a broker-dealer, a municipal advisor and an investment adviser with
the SEC and as a broker-dealer in all 50 states and the District of
Columbia. Self-regulatory organizations, such as FINRA and the
NYSE, adopt rules that apply to, and examine, broker-dealers such
as GS&Co.
Our broker-dealer and other subsidiaries are also subject to rules
adopted by federal agencies pursuant to the DoddFrank Act that
require any person who organizes or initiates an asset-backed security
transaction to retain a portion (generally, at least five percent) of any
credit risk that the person conveys to a third party. Securitizations
would also be affected by rules proposed by the SEC to implement the
Dodd-Frank Act’s prohibition against securitization participants
engaging in any transaction that would involve or result in any
material conflict of interest with an investor in a securitization
transaction. The proposed rules would exempt bona fide market-
making activities and risk-mitigating hedging activities in connection
with securitization activities from the general prohibition.
 MAJOR RISKS IN THE INDUSTRY

LIQUIDITY, MARKET, CREDIT, OPERATIONAL, MODEL,

LEGAL, REGULATORY AND REPUTATIONAL RISKS.
 RISK FACTORS
Our businesses have been and may continue to be adversely affected
by conditions in the global financial markets and economic conditions
generally MARKET/GLOBAL
Our businesses and those of our clients are subject to extensive and
pervasive regulation around the world. MARKET/GLOBAL
Our market-making activities have been and may be affected by
changes in the levels of market volatility. MARKET
Our investment banking, client execution and investment
management businesses have been adversely affected and
may in the future be adversely affected by market uncertainty
or lack of confidence among investors and CEOs due to
general declines in economic activity and other unfavorable
economic, geopolitical or market conditions. MARKET
Our businesses have been and may be adversely affected by
declining asset values. This is particularly true for those
businesses in which we have net “long” positions, receive
fees based on the value of assets managed, or receive or post
collateral
The financial services industry is both highly competitive and
interrelated. MARKET
Our liquidity, profitability and businesses may be adversely affected by
an inability to access the debt capital markets or to sell assets or by a
reduction in our credit ratings or by an increase in our credit spreads.
LIQUIDITY
Our businesses have been and may be adversely affected by disruptions
in the credit markets, including reduced access to credit and higher
costs of obtaining credit. CREDIT
Group Inc. is a holding company and is dependent for liquidity on
payments from its subsidiaries, many of which are subject to
restrictions LIQUIDITY
Our businesses, profitability and liquidity may be adversely affected by
deterioration in the credit quality of, or defaults by, third parties who
owe us money, securities or other assets or whose securities or
obligations we hold. CREDIT/LIQUIDITY
A failure in our operational systems or infrastructure, or those of
third parties, as well as human error, could impair our liquidity,
disrupt our businesses, result in the disclosure of confidential
information, damage our reputation and cause losses.
OPERATIONAL/LIQUIDITY
Our investment management business may be affected by the
poor investment performance of our investment products or a
client preference for products other than those which we offer.
OPERATIONAL
We may incur losses as a result of ineffective risk management
processes and strategies. OPERATIONAL
A failure to protect our computer systems, networks and
information, and our clients’ information, against cyber attacks
and similar threats could impair our ability to conduct our
businesses, result in the disclosure, theft or destruction of
confidential information, damage our reputation and cause
losses. OPERATIONAL
The application of Group Inc.’s proposed resolution strategy could
result in greater losses for Group Inc.’s security holders, and failure
to address shortcomings in our resolution plan could subject us to
increased regulatory requirements. LEGAL/OPERATIONAL
The application of regulatory strategies and requirements in the U.S.
and non-U.S. jurisdictions to facilitate the orderly resolution of large
financial institutions could create greater risk of loss for Group Inc.’s
security holders LEGAL
Substantial legal liability or significant regulatory action against us
could have material adverse financial effects or cause us significant
reputational harm, which in turn could seriously harm our business
prospects. LEGAL
A failure to appropriately identify and address potential conflicts of
interest could adversely affect our businesses. LEGAL
Our commodities activities, particularly our physical commodities
activities, subject us to extensive regulation and involve certain
potential risks, including environmental, reputational and other risks
that may expose us to significant liabilities and costs LEGAL
We face enhanced risks as new business initiatives lead us to
transact with a broader array of clients and counterparties and
expose us to new asset classes and new markets.
Derivative transactions and delayed settlements may expose us
to unexpected risk and potential losses.
Concentration of risk increases the potential for significant
losses in our market-making, underwriting, investing and
lending activities.
The growth of electronic trading and the introduction of new
trading technology may adversely affect our business and
may increase competition. COMMERCIAL
We may be adversely affected by increased governmental
and regulatory scrutiny or negative publicity
LEGAL/COMMERCIAL
In conducting our businesses around the world, we are
subject to political, economic, legal, operational and other
risks that are inherent in operating in many countries.
EVERYTHING
We may incur losses as a result of unforeseen or catastrophic
events, including the emergence of a pandemic, terrorist
attacks, extreme weather events or other natural disasters
GOD
RISK MANAGEMENT FRAMEWORK

• The board • Marking inventory • Training

• Independent to current market • Evaluating
control and level • rewarding
support functions • Approving risk
limits

Governance process People

RISK MANAGEMENT STRUCTURE
LIQUIDITY RISK

• GOLA : MEET LIQUIDITY NEEDS AND FUND THE FIRM IN THE EVENT OF
FIRM-SPECIFIC, BROADER INDUSTRY OR MARKET LIQUIDITY STRESS
EVENTS
• TREASURY: ASSESSING MONITORING AND MANAGING LIQUIDITY (CFO)
• LIQUIDITY RISK MANAGEMENT: INDEPENDENT, RESPONSIBLE FOR
CONTROL AND OVERSIGHT (CRO)
LIQUIDITY RISK: THREE PRINCIPLES

• 1. HOLD EXCESS LIQUIDITY WITH GCLA TO COVER OUTFLOW

• 2. MAINTAIN ASSET-LIABILITY MANAGEMENT
• 3.MAINTAIN A VIABLE CONTINGENCY FUNDING PLAN
LIQUIDITY : GCLA

• GLOBAL CORE LIQUID ASSETS

• - REPURCHASE AGREEMENT
• - MATURITIES OF RESALE AGREEMENT
ASSET-LIABILITY MANAGEMENT

• GOAL: LONG DATED AND DIVERSIFIED FUNDING PROFILE

ASSET-LIABILITY MANAGEMENT
• THREE APPROACHES:
• 1. CONSERVATIVELY MANAGING THE OVERALL FUNDING
BOOK, AND FOCUS ON LONG-TERM DIVERSIFIED SOURCE OF
FUNDING
• 2. ACTIVELY MANAGING/MONITORING ASSET BASE
(LIQUIDITY/HOLDING PERIOD/ABILITY TO FUND ASSETS ON A
SECURED BASIS)
• 3. RAISING SECURED AND UNSECURED FINANCING WITH
LONG TENOR THAN THE LIQUIDITY PROFILE OF ASSETS.
CONTINGENCY FUNDING PLAN

• PROVIDE FRAMEWORK FOR ANALYZING LIQUIDITY RISKS

• OUTLINE LIST OF POTENTIAL RISK FACTORS
• IDENTIFIES KEY GROUPS OF INDIVIDUALS TO FOSTER
EFFECTIVE COORDINATION CONTROL AND DISTRIBUTION OF
INFORMATION
LIQUIDITY STRESS TEST

• 1. MODELED LIQUIDITY RISKS

• 2. INTRADAY LIQUIDITY MODEL
LIQUIDITY STRESS TEST: MODELED LIQUIDITY
RISK

• CAPTURE AND QUANTIFIES LIQUIDITY RISK

• CONDUCTING MULTIPLE SCENARIOS THAT INCLUDE MARKET-
WIDE AND FIRM-WIDE SPECIFIC STRESS
LIQUIDITY STRESS TEST: MODELED LIQUIDITY
RISK
• PARAMETERS:
• 1.LIQUIDITY NEEDS OVER 30-DAY SCENARIO
• 2.TWO-NOTCH DOWNGRADE OF LONG-TERM SENIOR
UNSECURED CREDIT RATINGS
• 3.COMBINATION OF CONTRACTUAL OUTFLOWS AND
CONTINGENT OUTFLOWS
• 4.NO ISSUANCE OF EQUITY /UNSECURED DEB
• 5.NO SUPPORT FROM ADDITIONAL GOVERNMENT FUNDING
• NO ASSET LIQUIDATION OTHER THAN GCLA
LIQUIDITY STRESS TEST: INTRADAY LIQUIDITY
MODEL

• ACCESS THE RISK OF INCREASED INTRADAY LIQUIDITY REQUIREMENT

WHEN ACCESS TO SOURCES OF INTRADAY MAY BECOME CONSTRAINED
LIQUIDITY STRESS TEST: INTRADAY LIQUIDITY
MODEL

• KEY MODEL ELEMENTS:

• 1. LIQUIDITY NEEDS OVER A ONE-DAY SETTLEMENT PERIOD
• 2. DELAYS IN RECEIPT OF COUNTERPARTY CASH PAYMENTS
• 3. A REDUCTION IN THE AVAILABILITY OF INTRADAY CREDIT
LINES AT OUR THIRD-PARTY CLEARING AGENTS
• 4. HIGHER SETTLEMENT VOLUMES DUE TO AND INCREASE IN
ACTIIVITY
LIMITS

• USE LIQUIDITY LIMITS AT VARIOUS LEVELS AND ACROSS

LIQUIDITY RISK TYPES TO MANAGE THE SIZE OF LIQUIDITY
RISK TYPES TO MANAGE THE SIZE OF LIQUIDITY EXPOSURES
• APPROVED BY RISK COMMITTEE OF THE BOARD AND THE
FIREWIDE FINANCE COMMITTEE
• MONITORED BY TREASURY AND LIQUIDITY RISK MANAGEMENT
LIMITS

• GCLA: 226.07 B AND 199.12 B FOR 2016 AND 2015

• MINIMUM LIQUIDITY STANDARDS APPROVED BY THE U.S.
FEDERAL BANK REGULATORY AGENCIES CALL FOR A
LIQUIDITY COVERAGE RATIO (LCR).
CREDIT RATINGS
MARKET RISK MANAGEMENT

• RISK OF LOSS IN THE VALUE OF INVENTORY AND CERTAIN

OTHER FINANCIAL ASSETS AND LIABILITIES DUE TO CHANGE
IN MARKET CONDITIONS
• INVENTORY CHANGED BASED ON CLINE DEMANDS AND
INVESTMENT OPPORTUNITIES, AND ACCOUNTED FOR AT FAIR
VALUE AND FLUCTUATES ON A DAILY BASIS
MARKET RISK MANAGEMENT: CATEGORIES

• INTEREST RATE RISK

• EQUITY PRICE RISK
• CURRENCY RATE RISK
• COMMODITY PRICE RISK
MARKET RISK MANAGEMENT: PROCESS

• ACCURATE AND TIMELY EXPOSURE INFORMATION

INCORPORATING MULTIPLE RISK METRICS
• A DYNAMIC LIMIT SETTING FRAMEWORK
• CONSTANT COMMUNICATION AMONG REVENUE-PRODUCING
UNITS, RISK MANAGERS AND SENIOR MANAGEMENT
VALUE AT RISK
• PRIMARY SHORT-TERM RISK MEASURE
• POTENTIAL LOSS IN VALUE DUE TO ADVERSE MARKET
MOVEMENTS OVER A DEFINED PERIOD
• USE A SINGLE VAR MODEL WHICH CAPTURE RISKS INCLUDING
INTEREST RATES, EQUITY PRICES, CURRENCY RATE AND
COMMODITY PRICES.
• CAPTURES THE DIVERSIFICATION OF AGGREGATED RISK AT
THE FIRM WIDE LEVEL
• FULL VALUATION OF APPROXIMATELY 70,000 MARKET
FACTORS.
• SAMPLE FROM FIVE YEARS OF HISTORICAL DATA TO
GENERATE SCENARIOS.
• DAILY BACKTESTING OF VAR MODEL
VALUE AT RISK: LIMITATION

• VAR DOESN’T NOT ESTIMATE POTENTIAL LOSSES OVER

LONGER TIME HORIZONS WHERE MOVES MAY BE EXTREME
• VAR DOES NOT TAKE ACCOUNT OF THE RELATIVE LIQUIDITY
OF DIFFERENT RISK POSITIONS
• PREVIOUS MOVES IN MARKET RISK FACTORS MAY NOT
PRODUCE ACCURATE PREDICTIONS OF ALL FUTURE MARKET
MOVES
VALUE AT RISK: STRESS TESTING

• SENSITIVITY ANALYSIS
• SCENARIO ANALYSIS
• FIRMWIDE STRESS TEST
VALUE AT RISK: LIMITS

• SET BASED ON VAR AND ON A RANGE OF STRESS RELEVANT

TO EXPOSURE.
• RISK COMMITTEE OF THE BOARD AND RISK GOVERNANCE
COMMITTEE APPROVES MARKET RISK LIMITS AND SUB-LIMIITS
AT FIRMWIDE BUSINESS
• MARKET RISK MANAGEMENT TO MONITOR THE LIMIT DAILY. IF
EXCEEDED, IT IS ESCALATED TO SENIOR MANAGERS IN
MARKET RISK MANAGEMENT AND/OR THE APPROPRIATE RISK
COMMITTEE
VaR Metrics - Daily Average
VaR Metrics - Year End
SENSITIVITY MEASURES

• VAR IS NOT THE MOST APPROPRIATE MEASURE

• 10% SENSITIVITY MEASURE
• CREDIT SPREAD SENSITIVITY ON DERIVATIVES AND
FINANCIAL LIABILITIES
• INTEREST RATE SENSITIVITY
10% SENSITIVITY ANALYSIS
FINANCIAL STATEMENT LINKAGE TO RISK
MEASURES
CREDIT RISK MANAGEMENT

• POTENTIAL LOSS DUE TO THE DEFAULT OR DETERIORATION IN

CREDIT QUALITY OF A COUNTERPARTY /ISSUER OF
SECURITIES
• GOLDMAN SACHS’ MOST EXPOSURE COMES FROM OTC
DERIVATIVES AND LOANS AND LENDING COMMITMENTS
• APPROVING TRANSACTION AND SETTING AND COMMUNICATING
CREDIT
CREDIT RISKLIMITS
EXPOSURE MANAGEMENT: PROCESS
• ESTABLISHING OR APPROVING UNDERWRITING STANDARDS
• MONITORING COMPLIANCE WITH ESTABLISHED CREDIT EXPOSURE
LIMITS
• ASSESSING THE LIKELIHOOD THAT A COUNTERPARTY WILL DEFAULT
ON ITS PAYMENT OBLIGATIONS
• MEASURING CURRENT AND POTENTIAL CREDIT EXPOSURE AND
LOSSES RESULTING FROM COUNTERPARTY DEFAULT
• REPORTING OF CREDIT EXPOSURES TO SENIOR MANAGEMENT, THE
BOARD AND REGULATORS
• USING CREDIT RISK MITIGATES, INCLUDING COLLATERAL AND
HEDGING
• COMMUNICATING AND COLLABORATING WITH OTHER INDEPENDENT
CONTROL AND SUPPORT FUNCTIONS SUCH AS OPERATIONS, LEGAL
AND COMPLIANCE
CREDIT RISK MANAGEMENT: LIMITS

• FOR DERIVATIVES AND SECURITIES FINANCING TRANSACTIONS, THE

PRIMARY MEASURE IS POTENTIAL EXPOSURE.
• FOR LOANS AND LENDING COMMITMENTS, THE PRIMARY MEASURE IS A
FUNCTION OF THE NOTIONAL AMOUNT OF THE POSITION.
• THE FIRM USES CREDIT LIMITS AT VARIOUS LEVELS (COUNTERPARTY,
ECONOMIC GROUP, INDUSTRY, COUNTRY) TO CONTROL THE SIZE OF OUR
CREDIT EXPOSURES.
CREDIT RISK MANAGEMENT: STRESS TEST

• USE REGULAR STRESS TESTS TO CALCULATE THE CREDIT

EXPOSURES
• APPLYING SHOCKS TO COUNTERPARTY CREDIT RATINGS OR
CREDIT RISK FACTORS: CURRENCY RATES, INTEREST RATES,
EQUITY PRICES, ETC
• SOME OF THE STRESS TESTS INCLUDE SHOCKS TO MULTIPLE
RISK FACTORS
• RUN STRESS TESTS ON A REGULAR BASIS AS PART OF
ROUTINE RISK MANAGEMENT PROCESSES, CONDUCTED
JOINTLY WITH THE MARKET AND LIQUIDITY RISK FUNCTIONS
CREDIT RISK MANAGEMENT: MITTGANTS
• FOR DERIVATIVES AND SECURITIES:
• NETTING AGREEMENTS TO OFFSET RECEIVABLES AND
PAYABLES AGREEMENTS TO OBTAIN COLLATERAL ON AN
UPFRONT OR CONTINGENT BASIS AND/OR TO TERMINATE
TRANSACTIONS THE CREDIT RATING FALLS BELOW A
SPECIFIED LEVEL

• FOR LOANS AND LENDING COMMITMENTS:

• COLLATERAL PROVISIONS, GUARANTEES, COVENANTS,
STRUCTURAL SENIORITY OF THE BANK LOAN CLAIMS, CERTAIN
LENDING COMMITMENTS, PROVISIONS IN THE LEGAL
DOCUMENTATION TO ADJUST LOAN AMOUNTS, PRICING,
STRUCTURE AND OTHER TERMS
CREDIT RISK MANAGEMENT: BORROWING BY
CREDIT RATING
CREDIT RISK MANAGEMENT: CREDIT
EXPOSURES
OPERATIONAL RISK MANAGEMENT

• RISK OF LOSS RESULTING FROM INADEQUATE OR FAILED

INTERNAL PROCESSES, PEOPLE AND SYSTEMS OR FROM
EXTERNAL EVENTS.
• ARISES FROM ROUTINE PROCESSING ERRORS AS WELL AS
EXTRAORDINARY INCIDENTS, SUCH AS MAJOR SYSTEMS
FAILURES OR LEGAL AND REGULATORY MATTERS
OPERATIONAL RISK MANAGEMENT: TYPES

• CLIENTS, PRODUCTS AND BUSINESS PRACTICES

• EXECUTION, DELIVERY AND PROCESS MANAGEMENT
• BUSINESS DISRUPTION AND SYSTEM FAILURES
• EMPLOYMENT PRACTICES AND WORKPLACE SAFETY
• DAMAGE TO PHYSICAL ASSETS
• INTERNAL FRAUD
• EXTERNAL FRAUD
OPERATIONAL RISK MANAGEMENT:
PERSPECTIVES

TOP DOWN PERSPECTIVE:

SENIOR MANAGEMENT ASSESSES FIRMWIDE AND BUSINESS LEVEL
OPERATIONAL RISK PROFILES.

BOTTOM UP PERSPECTIVE:
REVENUE-PRODUCING UNITS AND INDEPENDENT CONTROL AND SUPPORT
FUNCTIONS ARE RESPONSIBLE FOR RISK MANAGEMENT ON A DAY-TO-DAY
BASIS,
OPERATIONAL RISK MANAGEMENT: TYPES

• DESIGNED TO COMPLY WITH OPERATIONAL RISK

MEASUREMENT RULES UNDER BASEL III
• THE FRAMEWORK COMPRISES OF:
• RISK IDENTIFICATION AND REPORTING
• RISK MEASUREMENT
• RISK MONITORING
INVESTMENT BANKING OPERATING RESULTS
BALANCE SHEET
ALLOCATION
BALANCE SHEET

• RISK MANAGEMENT DISCIPLINE TO MANAGE THE SIZE AND COMPOSITION

OF THE BALANCE SHEET
• USED TO REFLECT FACTORS OF
• OVERALL RISK TOLERANCE
• AMOUNT OF EQUITY CAPITAL HELD
• FUNDING PROFILE
CASH FLOW
STATEMENT
FULLY PHASED-IN CAPITAL
RATIOS
SHAREHOLDERS EQUITY
FUNDING SOURCES

THE FIRM’S PRIMARY SOURCES OF FUNDING ARE :

● SECURED FINANCINGS
● UNSECURED LONG-TERM
● SHORT-TERM BORROWINGS
● DEPOSITS
UNSECURED LONG TERM BORROWING
MINIMUM CAPITAL RATIOS & BUFFERS

MINIMUM RATIOS REQUIRED UNDER BASEL III AND

REVISED CAPITAL FRAMEWORK
● THE RATIO REQUIREMENT INCREASES INCREMENTALLY EVERY YEAR,
INCLUDING THE ADDITION OF NEW CAPITAL BUFFERS
● COMMON EQUITY TIER 1, OR CET1, IS A MEASUREMENT OF A FIRM’S CORE
EQUITY CAPITAL COMPARED WITH ITS TOTAL RISK-WEIGHTED ASSETS
CAPITAL RATIOS