GS » Topics » Note 15. Regulation

These excerpts taken from the GS 10-K filed Jan 27, 2009.
Regulation
 
Goldman Sachs, as a participant in the banking, securities, commodity futures and options and insurance industries, is subject to extensive regulation in the United States and the other countries in which we operate. See “Risk Factors — Our businesses and those of our clients are subject to extensive and pervasive regulation around the world” in Part I, Item 1A of our Annual Report on Form 10-K for a further discussion of the effect that regulation may have on our businesses. As a matter of public policy, regulatory bodies around the world are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of clients participating in those markets, including depositors in U.S. depository institutions such as GS Bank USA. They are not, however, generally charged with protecting the interests of Goldman Sachs’ shareholders or creditors.
 
On September 21, 2008, Group Inc. became a bank holding company under the BHC Act. As of that date, the Federal Reserve Board became the primary U.S. regulator of Group Inc., as a consolidated entity. Prior to September 21, 2008, Group Inc. was subject to regulation by the SEC as a Consolidated Supervised Entity (CSE) and was subject to group-wide supervision and examination by the SEC and to minimum capital standards on a consolidated basis. On September 26, 2008, the SEC announced that it was ending the CSE program. Our principal U.S. broker-dealer, Goldman, Sachs & Co. (GS&Co.) remains subject to regulation by the SEC.
 
Regulation


 



Goldman Sachs, as a participant in the banking, securities,
commodity futures and options and insurance industries, is
subject to extensive regulation in the United States and the
other countries in which we operate. See “Risk
Factors — Our businesses and those of our clients are
subject to extensive and pervasive regulation around the
world” in Part I, Item 1A of our Annual Report on
Form 10-K
for a further discussion of the effect that regulation may have
on our businesses. As a matter of public policy, regulatory
bodies around the world are charged with safeguarding the
integrity of the securities and other financial markets and with
protecting the interests of clients participating in those
markets, including depositors in U.S. depository
institutions such as GS Bank USA. They are not, however,
generally charged with protecting the interests of Goldman
Sachs’ shareholders or creditors.


 



On September 21, 2008, Group Inc. became a bank
holding company under the BHC Act. As of that date, the Federal
Reserve Board became the primary U.S. regulator of Group
Inc., as a consolidated entity. Prior to
September 21, 2008, Group Inc. was subject to
regulation by the SEC as a Consolidated Supervised Entity (CSE)
and was subject to
group-wide
supervision and examination by the SEC and to minimum capital
standards on a consolidated basis. On
September 26, 2008, the SEC announced that it was
ending the CSE program. Our principal
U.S. broker-dealer,
Goldman, Sachs & Co. (GS&Co.) remains subject to
regulation by the SEC.


 




These excerpts taken from the GS 10-K filed Jan 29, 2008.
Note 15.  Regulation
 
The firm is regulated by the U.S. Securities and Exchange Commission as a Consolidated Supervised Entity (CSE). As such, it is subject to group-wide supervision and examination by the SEC and to minimum capital standards on a consolidated basis. As of November 2007 and November 2006, the firm was in compliance with the CSE capital standards.
 
The firm’s principal U.S. regulated subsidiaries include Goldman, Sachs & Co. (GS&Co.) and Goldman Sachs Execution & Clearing, L.P. (GSEC). GS&Co. and GSEC are registered U.S. broker-dealers and futures commission merchants subject to Rule 15c3-1 of the SEC and Rule 1.17 of the Commodity Futures Trading Commission, which specify uniform minimum net capital requirements, as defined, for their registrants, and also require that a significant part of the registrants’ assets be kept in relatively liquid form. GS&Co. and GSEC have elected to compute their minimum capital requirements in accordance with the “Alternative Net Capital Requirement” as permitted by Rule 15c3-1. As of November 2007 and November 2006, GS&Co. and GSEC had net capital in excess of their minimum capital requirements. In addition to its alternative minimum net capital requirements, GS&Co. is also required to hold tentative net capital in excess of $1 billion and net capital in excess of $500 million in accordance with the market and credit risk standards of Appendix E of Rule 15c3-1. GS&Co. is also required to notify the SEC in the event that its tentative net capital is less than $5 billion. As of November 2007 and November 2006, GS&Co. had tentative net capital and net capital in excess of both the minimum and the notification requirements.
 
GS Bank USA, a wholly owned industrial bank, is regulated by the Federal Deposit Insurance Corporation and the State of Utah Department of Financial Institutions and is subject to minimum capital requirements. As of November 2007, GS Bank USA was in compliance with all regulatory capital requirements. Substantially all of the firm’s bank deposits as of November 2007 consisted of U.S. dollar-denominated savings accounts at GS Bank USA. Savings accounts at GS Bank USA have no stated maturity and can be withdrawn upon short notice. The weighted average interest rates for savings deposits were 4.71% and 5.17% as of November 2007 and November 2006, respectively. The carrying value of savings deposits approximated fair value as of November 2007 and November 2006.
 
The firm has U.S. insurance subsidiaries that are subject to state insurance regulation and oversight in the states in which they are domiciled and in the other states in which they are licensed. In addition, certain of the firm’s insurance subsidiaries are regulated by the Bermuda Registrar of Companies. The firm’s insurance subsidiaries were in compliance with all regulatory capital requirements as of November 2007 and November 2006.
 
The firm’s principal non-U.S. regulated subsidiaries include Goldman Sachs International (GSI) and Goldman Sachs Japan Co., Ltd. (GSJCL). GSI, the firm’s regulated U.K. broker-dealer, is subject to the capital requirements of the U.K.’s Financial Services Authority. GSJCL, the firm’s regulated Japanese broker-dealer, is subject to the capital requirements of Japan’s Financial Services Agency. As of November 2007 and November 2006, GSI and GSJCL were in compliance with their local capital adequacy requirements. Certain other non-U.S. subsidiaries of the firm are also subject to capital adequacy requirements promulgated by authorities of the countries in which they operate. As of November 2007 and November 2006, these subsidiaries were in compliance with their local capital adequacy requirements.
 
The regulatory requirements referred to above restrict Group Inc.’s ability to withdraw capital from its regulated subsidiaries. As of November 2007, approximately $18.10 billion of net assets of regulated subsidiaries were restricted as to the payment of dividends to Group Inc.


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Table of Contents

 
THE GOLDMAN SACHS GROUP, INC. and SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 
 
Note 15.  Regulation


 



The firm is regulated by the U.S. Securities and Exchange
Commission as a Consolidated Supervised Entity (CSE). As such,
it is subject to group-wide supervision and examination by the
SEC and to minimum capital standards on a consolidated basis. As
of November 2007 and November 2006, the firm was in
compliance with the CSE capital standards.


 



The firm’s principal U.S. regulated subsidiaries
include Goldman, Sachs & Co. (GS&Co.) and Goldman
Sachs Execution & Clearing, L.P. (GSEC). GS&Co.
and GSEC are registered U.S.
broker-dealers
and futures commission merchants subject to
Rule 15c3-1
of the SEC and Rule 1.17 of the Commodity Futures Trading
Commission, which specify uniform minimum net capital
requirements, as defined, for their registrants, and also
require that a significant part of the registrants’ assets
be kept in relatively liquid form. GS&Co. and GSEC have
elected to compute their minimum capital requirements in
accordance with the “Alternative Net Capital
Requirement” as permitted by
Rule 15c3-1.
As of November 2007 and November 2006, GS&Co. and GSEC had
net capital in excess of their minimum capital requirements. In
addition to its alternative minimum net capital requirements,
GS&Co. is also required to hold tentative net capital in
excess of $1 billion and net capital in excess of
$500 million in accordance with the market and credit risk
standards of Appendix E of
Rule 15c3-1.
GS&Co. is also required to notify the SEC in the event that
its tentative net capital is less than $5 billion. As of
November 2007 and November 2006, GS&Co. had tentative net
capital and net capital in excess of both the minimum and the
notification requirements.


 



GS Bank USA, a wholly owned industrial bank, is regulated by the
Federal Deposit Insurance Corporation and the State of Utah
Department of Financial Institutions and is subject to minimum
capital requirements. As of November 2007, GS Bank USA was in
compliance with all regulatory capital requirements.
Substantially all of the firm’s bank deposits as of
November 2007 consisted of U.S. dollar-denominated savings
accounts at GS Bank USA. Savings accounts at GS Bank USA have no
stated maturity and can be withdrawn upon short notice. The
weighted average interest rates for savings deposits were 4.71%
and 5.17% as of November 2007 and November 2006, respectively.
The carrying value of savings deposits approximated fair value
as of November 2007 and November 2006.


 



The firm has U.S. insurance subsidiaries that are subject
to state insurance regulation and oversight in the states in
which they are domiciled and in the other states in which they
are licensed. In addition, certain of the firm’s insurance
subsidiaries are regulated by the Bermuda Registrar of
Companies. The firm’s insurance subsidiaries were in
compliance with all regulatory capital requirements as of
November 2007 and November 2006.


 



The firm’s principal
non-U.S. regulated
subsidiaries include Goldman Sachs International (GSI) and
Goldman Sachs Japan Co., Ltd. (GSJCL). GSI, the firm’s
regulated U.K. broker-dealer, is subject to the capital
requirements of the U.K.’s Financial Services Authority.
GSJCL, the firm’s regulated Japanese broker-dealer, is
subject to the capital requirements of Japan’s Financial
Services Agency. As of November 2007 and November 2006, GSI and
GSJCL were in compliance with their local capital adequacy
requirements. Certain other
non-U.S. subsidiaries
of the firm are also subject to capital adequacy requirements
promulgated by authorities of the countries in which they
operate. As of November 2007 and November 2006, these
subsidiaries were in compliance with their local capital
adequacy requirements.


 



The regulatory requirements referred to above restrict Group
Inc.’s ability to withdraw capital from its regulated
subsidiaries. As of November 2007, approximately
$18.10 billion of net assets of regulated subsidiaries were
restricted as to the payment of dividends to Group Inc.





168





Table of Contents





 




THE GOLDMAN SACHS
GROUP, INC. and SUBSIDIARIES




 




NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 


 




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