Goldman Sachs Group (GS)

 

The U.S. Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), among other things, requires the federal banking agencies to take “prompt corrective action” in respect of depository institutions that do not meet specified capital requirements. FDICIA establishes five capital categories for FDIC-insured banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. A depository institution is deemed to be “well capitalized,” the highest category, if it has a total capital ratio of 10% or greater, a Tier 1 capital ratio of 6% or greater and a Tier 1 leverage ratio of 5% or greater and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure. In connection with the November 2008 asset transfer described below, GS Bank USA agreed with the Federal Reserve Board to minimum capital ratios in excess of these “well capitalized” levels. Accordingly, for a period of time, GS Bank USA is expected to maintain a Tier 1 capital ratio of at least 8%, a total capital ratio of at least 11% and a Tier 1 leverage ratio of at least 6%. We contributed subsidiaries with an aggregate of $117.16 billion in assets into GS Bank USA in November 2008 (which brought total assets in GS Bank USA to $145.06 billion as of November 2008). As a result, we are currently working with the Federal Reserve Board to finalize our methodology for the Basel I calculations. As of November 2008, under Basel I, GS Bank USA’s estimated Tier 1 capital ratio was 8.9% and estimated total capital ratio was 11.6%. In addition, GS Bank USA’s estimated Tier 1 leverage ratio was 9.1%. An institution may be downgraded to, or deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.

 

FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, as the capital category of an institution declines. Failure to meet the capital guidelines could also subject a depository institution to capital raising requirements. Ultimately, critically undercapitalized institutions are subject to the appointment of a receiver or conservator.

 

The prompt corrective action regulations apply only to depository institutions and not to bank holding companies such as Group Inc. However, the Federal Reserve Board is authorized to take appropriate action at the holding company level, based upon the undercapitalized status of the holding company’s depository institution subsidiaries. In certain instances relating to an undercapitalized depository institution subsidiary, the bank holding company would be required to guarantee the performance of the undercapitalized subsidiary’s capital restoration plan and might be liable for civil money damages for failure to fulfill its commitments on that guarantee. Furthermore, in the event of the bankruptcy of the parent holding company, the guarantee would take priority over the parent’s general unsecured creditors.

 

 

The U.S. Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA), among other things, requires the federal
banking agencies to take “prompt corrective action” in
respect of depository institutions that do not meet specified
capital requirements. FDICIA establishes five capital categories
for FDIC-insured banks: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized
and critically undercapitalized. A depository institution is
deemed to be “well capitalized,” the highest category,
if it has a total capital ratio of 10% or greater, a Tier 1
capital ratio of 6% or greater and a Tier 1 leverage ratio
of 5% or greater and is not subject to any order or written
directive by any such regulatory authority to meet and maintain
a specific capital level for any capital measure. In connection
with the November 2008 asset transfer described below, GS Bank
USA agreed with the Federal Reserve Board to minimum capital
ratios in excess of these “well capitalized” levels.
Accordingly, for a period of time, GS Bank USA is expected to
maintain a Tier 1 capital ratio of at least 8%, a total
capital ratio of at least 11% and a Tier 1 leverage ratio
of at least 6%. We contributed subsidiaries with an aggregate of
$117.16 billion in assets into GS Bank USA in November 2008
(which brought total assets in GS Bank USA to
$145.06 billion as of November 2008). As a result, we are
currently working with the Federal Reserve Board to finalize our
methodology for the Basel I calculations. As of November
2008, under Basel I, GS Bank USA’s estimated
Tier 1 capital ratio was 8.9% and estimated total capital
ratio was 11.6%. In addition, GS Bank USA’s estimated
Tier 1 leverage ratio was 9.1%. An institution may be
downgraded to, or deemed to be in, a capital category that is
lower than is indicated by its capital ratios if it is
determined to be in an unsafe or unsound condition or if it
receives an unsatisfactory examination rating with respect to
certain matters.

 

FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, as the capital
category of an institution declines. Failure to meet the capital
guidelines could also subject a depository institution to
capital raising requirements. Ultimately, critically
undercapitalized institutions are subject to the appointment of
a receiver or conservator.

 

The prompt corrective action regulations apply only to
depository institutions and not to bank holding companies such
as Group Inc. However, the Federal Reserve Board is authorized
to take appropriate action at the holding company level, based
upon the undercapitalized status of the holding company’s
depository institution subsidiaries. In certain instances
relating to an undercapitalized depository institution
subsidiary, the bank holding company would be required to
guarantee the performance of the undercapitalized
subsidiary’s capital restoration plan and might be liable
for civil money damages for failure to fulfill its commitments
on that guarantee. Furthermore, in the event of the bankruptcy
of the parent holding company, the guarantee would take priority
over the parent’s general unsecured creditors.