Goldman Sachs Bankand Subsidiaries 2021 Annual Repor : Goldman Sachs Bank USA and Subsidiaries - 2021 Annual Report

Published: 2024-08-02 07:40:23 ET GS

Goldman Sachs Bank USA and Subsidiaries

Annual Report

for the year ended December 31, 2021

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2021

INDEX

Page No.

PART I

Introduction

Business

Lending

Deposit Taking

Transaction Banking

Market Making

Underwriting

Financial Advisory Services

Asset and Wealth Management Services

Other Activities

Our Relationship with Group Inc. and our Affiliates

Human Capital Management

Competition

Regulation

Available Information

Forward Looking Statements

Risk Factors

PART II

Management's Discussion and Analysis of Financial

Condition and Results of Operations

Introduction

Executive Overview

Business Environment

Critical Accounting Policies

Use of Estimates

Recent Accounting Developments

Results of Operations

Balance Sheet and Funding Sources

Capital Management and Regulatory Capital

Regulatory and Other Matters

Off-Balance Sheet Arrangements

Risk Management

Overview and Structure of Risk Management

Liquidity Risk Management

Market Risk Management

Credit Risk Management

Operational Risk Management

Model Risk Management

Page No.

PART III

Financial Statements and Supplementary Data

Report of Independent Auditors

Consolidated Financial Statements

Consolidated Statements of Earnings

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

Consolidated Statements of Changes in Shareholder's Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Note 1.

Description of Business

Note 2.

Basis of Presentation

Note 3.

Significant Accounting Policies

Note 4.

Fair Value Measurements

Note 5.

Trading Assets and Liabilities

Note 6.

Trading Cash Instruments

Note 7.

Derivatives and Hedging Activities

Note 8.

Investments

106

Note 9.

Loans

110

Note 10.

Fair Value Option

120

Note 11.

Collateralized Agreements and Financings

123

Note 12.

Other Assets

126

Note 13.

Deposits

127

Note 14.

Unsecured Borrowings

128

Note 15.

Other Liabilities

129

Note 16.

Securitization Activities

130

Note 17.

Variable Interest Entities

131

Note 18.

Commitments, Contingencies and Guarantees

133

Note 19.

Regulation and Capital Adequacy

136

Note 20.

Transactions with Related Parties

142

Note 21.

Interest Income and Interest Expense

143

Note 22.

Income Taxes

144

Note 23.

Credit Concentrations

145

Note 24.

Legal Proceedings

146

Note 25.

Employee Incentive and Benefit Plans

147

Note 26.

Subsequent Events

148

Supplemental Financial Information

149

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

PART I

Introduction

Goldman Sachs Bank USA (GS Bank USA), together with its consolidated subsidiaries (collectively, the Bank), is a New York State-chartered bank and a member of the Federal Reserve System. The Bank is supervised and regulated by the Board of Governors of the Federal Reserve System (FRB), the New York State Department of Financial Services (NYDFS) and the Consumer Financial Protection Bureau (CFPB). As a member of the Federal Deposit Insurance Corporation (FDIC), GS Bank USA's deposits are insured by the FDIC up to the maximum amount provided by law. GS Bank USA is registered as a swap dealer with the U.S. Commodity Futures Trading Commission (CFTC) and as a security-based swap dealer with the Securities and Exchange Commission (SEC). GS Bank USA is also a government securities dealer subject to the rules and regulations of the U.S. Department of the Treasury (Treasury Department).

When we use the terms "we," "us" and "our," we mean GS Bank USA and its consolidated subsidiaries. When we use the term "GS Group" we are referring to The Goldman Sachs Group, Inc. (Group Inc.) and its consolidated subsidiaries, including us.

Our principal office is located in New York, New York. GS Bank USA operates two domestic branches, which are located in Salt Lake City, Utah and Draper, Utah. Both branches are regulated by the Utah Department of Financial Institutions. GS Bank USA has foreign branches in London, United Kingdom, which is regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) and in Tokyo, Japan, which is regulated by the Japan Financial Services Agency. In addition, in July 2021, GS Bank USA acquired Goldman Sachs Bank Europe SE (GSBE), an indirect wholly- owned bank subsidiary of Group Inc. headquartered in Frankfurt, Germany. GSBE is directly supervised by the European Central Bank (ECB) and additionally by BaFin and Deutsche Bundesbank in the context of the E.U. Single Supervisory Mechanism (SSM). GSBE has branches in Amsterdam, Copenhagen, Dublin, London, Luxembourg, Madrid, Milan, Paris, Stockholm and Warsaw that are also regulated by the relevant authorities in each jurisdiction.

GS Bank USA is a wholly-owned subsidiary of Group Inc. Group Inc. is a bank holding company (BHC) under the U.S. Bank Holding Company Act of 1956 (BHC Act) and a financial holding company (FHC) under amendments to the BHC Act effected by the U.S. Gramm-Leach-Bliley Act of 1999. Group Inc. is subject to supervision and examination by the FRB as its primary regulator.

References to "this Annual Report" are to our Annual Report for the year ended December 31, 2021. All references to 2021 and 2020 refer to our years ended, or the dates, as the context requires, December 31, 2021 and December 31, 2020, respectively.

Business

We are a financial services provider that engages in banking activities. We are GS Group's primary lending entity, serving corporate and private bank clients, as well as U.S. consumers through our digital platform, Marcus by Goldman Sachs (Marcus), and by issuing credit cards. We are also GS Group's primary deposit-taking entity. Our depositors include private bank clients, U.S. consumers, clients of third-party broker- dealers, institutions, corporations and our affiliates. Our consumer deposit-taking activities are conducted through Marcus. We also provide transaction banking services to institutions, corporations and our affiliates. In addition, we enter into interest rate, currency, credit and other derivatives, and transact in certain related cash products, for the purpose of market making and risk management. The acquisition of GSBE expanded our activities in the E.U. and introduced new business lines, such as underwriting and market making in debt and equity securities; financial advisory services; and asset and wealth management services.

Lending

We are GS Group's primary lending entity. We provide loans, on a secured and unsecured basis, to corporations, private bank clients and U.S. consumers. See Note 9 to the consolidated financial statements in Part III of this Annual Report for further information about our lending activities.

We also provide lending commitments. Commercial lending commitments are primarily agreements to lend with fixed termination dates. We also issue credit cards that provide U.S. consumers with revolving lines of credit, which can be cancelled by us. See Note 18 to the consolidated financial statements in Part III of this Annual Report for further information about our commitments to extend credit.

Corporate Loans. We offer term loans, revolving lines of credit, letter of credit facilities and bridge loans to institutions and corporations. The proceeds from these forms of lending are principally used by borrowers for liquidity and general corporate purposes or in connection with acquisitions. We may elect to syndicate portions of these loans either directly or through our affiliates or may retain the loans.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Some of these lending opportunities arise from referrals made by our affiliates. Accordingly, the volume of loans we make largely corresponds to levels of loan demand from clients of GS Group. The loans are all subject to our underwriting criteria, consistent with applicable banking law and regulation. We are, in some cases, compensated by Group Inc. or our affiliates for participation in certain lending activities.

The type of loan, including whether the loan is secured or unsecured, extended to a borrower varies and is dependent upon the borrower's needs and capital structure and the then- current state of the credit markets. In each case, we underwrite the loan based on our underwriting criteria. However, in some cases, we rely on services provided by affiliates to assist in this process.

Wealth Management Loans. We provide loans and lines of credit to private bank clients, including wealth management and other clients. Substantially all of these loans are secured by securities, commercial and residential real estate or other assets. We work with clients in order to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps and provide liquidity for other needs. We underwrite, structure and negotiate pricing for these loans based on our underwriting criteria. However, in some cases, we rely on services provided by affiliates to assist in this process. We also originate secured loans through Goldman Sachs Private Bank Select (GS Select) to clients of financial advisors at third-partybroker-dealers, registered investment advisors and asset custodians.

Commercial and Residential Real Estate Loans. We originate and purchase loans secured by commercial and residential real estate and lend to clients who warehouse assets that are directly or indirectly secured by commercial and residential real estate.

Installment, Credit Card and Other Loans. We originate unsecured fixed-rate loans to U.S. consumers through Marcus, issue credit cards to U.S. consumers and lend to clients who warehouse assets that are directly or indirectly secured by consumer loans, including auto loans and private student loans, and other assets.

Deposit Taking

We are GS Group's primary deposit-taking entity. We accept deposits from private bank clients, U.S. consumers, clients of third-partybroker-dealers, institutions, corporations and our affiliates. Deposits are our primary source of funding for our assets.

We accept deposits through Marcus, our sweep programs with affiliates and third-partybroker-dealers and our transaction banking activities. We also issue brokered certificates of deposit (CDs), distributed through third-partybroker-dealers and Goldman Sachs & Co. LLC (GS&Co.). Additionally, we accept consumer time deposits through Marcus and also accept institutional time deposits.

For further information about our deposits, including the sources and types of our deposits and the amount that is insured by the FDIC, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Balance Sheet and Funding Sources - Funding Sources - Deposits" in Part II of this Annual Report and Note 13 to the consolidated financial statements in Part III of this Annual Report.

Transaction Banking

We provide transaction banking services to institutions, corporations and affiliates through our cash management platform, offering commercial deposit accounts as well as payment, escrow and liquidity management services.

Market Making

We enter into interest rate, currency, credit, equity and commodity derivatives, and transact in certain related cash products, for the purpose of market making and also use derivatives to manage our own risk exposure as part of our risk management processes. Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. Derivative transactions provide liquidity to clients and facilitate the active management of risk exposures, including market, credit and other risks.

We enter into various types of derivatives, including (i) swaps (which are agreements to exchange cash flows, such as currency or interest payment streams), (ii) options (contracts which provide the right but not the obligation to buy or sell a certain financial instrument or currency on a specified date in the future at a certain price) and (iii) futures and forwards (which are contracts to purchase or sell a financial instrument, currency or commodity in the future).

Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are referred to as over-the-counter (OTC) derivatives. Certain of these OTC derivatives are cleared and settled through central clearing counterparties, while others are bilateral contracts between two counterparties.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

We have entered into derivative transactions with both affiliates and unaffiliated third parties. Affiliate trades are part of Group Inc.'s centralized hedging and risk management processes and practices.

See Note 7 to the consolidated financial statements in Part III of this Annual Report for further information about our derivative products and activities.

We also make markets in certain debt and equity securities. See Note 6 to the consolidated financial statements in Part III of this Annual Report for further information about our cash products.

Underwriting

Our underwriting activities include public offerings and private placements, including acquisition financing, of a wide range of securities and other financial instruments, including loans.

Financial Advisory Services

We provide financial advisory services, including strategic advisory engagements with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings and spin-offs.

Asset and Wealth Management Services

We provide asset management services and our revenues include asset-based fees on client assets that are being managed on a fiduciary basis by GS Group's portfolio managers. We also provide wealth advisory services, including portfolio management and financial counseling, brokerage and other transaction services to high-net-worth individuals and families.

Our asset management business significantly depends on our ability to delegate portfolio management to other affiliates.

Other Activities

We also engage in securities financing transactions and agency lending.

See Notes 11 and 18 to the consolidated financial statements in Part III of this Annual Report for further information about our securities financings and agency lending.

Our Relationship with Group Inc. and our Affiliates GS Bank USA is a wholly-owned insured depository institution (IDI) subsidiary of Group Inc. We use and benefit from business relationships, certain processes, support systems and infrastructure, and financial support of Group Inc. and our affiliates. We also provide certain processes, support systems and infrastructure to Group Inc. and our affiliates and provide payment services and intraday liquidity for certain affiliates.

Services provided from and to our affiliates are governed under Master Services Agreements and supplemented by Service Level Agreements (collectively, the Master Services Agreement). We benefit from our affiliates' access to third- party vendors, experience and knowledge, and services provided to us by employees of affiliates.

All of our relationships and transactions with our affiliates are closely monitored in accordance with applicable laws and regulations, including, without limitation, Sections 23A and 23B of the Federal Reserve Act and the FRB's Regulation W. For further information about our relationships and transactions with our affiliates, see "Risk Factors - We are a wholly-owned subsidiary of Group Inc. and are dependent on Group Inc. and certain of our affiliates for client business, various services and capital" and Note 20 to the consolidated financial statements in Part III of this Annual Report.

Business Relationships. Our affiliates are sources of business for certain of our lending and other business activities, and often are counterparties to derivatives transactions with us. See " - Lending - Corporate Loans," "

Support Services. We receive operational and administrative support services from Group Inc. and our affiliates pursuant to the Master Services Agreement. All operational and administrative support services we receive from Group Inc. and our affiliates are overseen by our employees. Support services include trade execution, loan origination and servicing, operational and infrastructure services, control and other support services. We also provide certain operational support to our affiliates.

Funding Sources. In addition to accepting deposits and deposit sweep programs from affiliates, we also have access to funding facilities primarily from Group Inc. and Goldman Sachs Funding LLC (Funding IHC), a wholly-owned subsidiary of Group Inc. See Note 14 to the consolidated financial statements in Part III of this Annual Report for further information about funding facilities from Group Inc. and Funding IHC.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

We receive secured funding from Group Inc. and our affiliates. In particular, we enter into collateralized financings including securities sold under agreements to repurchase (repurchase agreements). In addition, our shareholder's equity provides us with a stable and perpetual source of funding. See " - Other Activities" above, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Balance Sheet and Funding Sources - Funding Sources" in Part II of this Annual Report and Note 11 to the consolidated financial statements in Part III of this Annual Report for further information about our funding sources.

Group Inc. General Guarantee. Group Inc. has agreed to guarantee our payment obligations (General Guarantee Agreement), subject to certain limitations. Subject to the terms and conditions of the General Guarantee Agreement, Group Inc. unconditionally and irrevocably guarantees complete payment of all of our payment obligations when due, other than non-recourse payment obligations and payment obligations arising in connection with any of our CDs (unless applicable governing documents of the CD expressly state otherwise) and our outstanding notes evidencing senior unsecured debt.

Furthermore, FRB regulation requires Group Inc., as a BHC, to act as a source of strength to us, as its bank subsidiary, and to commit capital and financial resources to support us.

Human Capital Management

As of December 2021, we had 3,699 direct employees and 814 dual employees who perform services for both us and our affiliates pursuant to an Employee Sharing Agreement. Employees of our affiliates also provide services to us under the Master Services Agreement.

Our people are our greatest asset. We believe that a major strength and principal reason for our success is the quality, dedication, determination and collaboration of our people, which enables us to compete effectively in our businesses, serve our clients and contribute to the broader community. We invest heavily in developing and supporting our people throughout their careers, and we strive to maintain a work environment that fosters professionalism, excellence, high standards of business ethics, diversity, teamwork and cooperation among our employees.

Diversity and Inclusion

The strength of our culture, our ability to execute our strategy, and our relationships with clients all depend on a diverse workforce and an inclusive work environment that encourages a wide range of perspectives. We believe that diversity at all levels of our organization, from entry-level analysts to senior management, is essential to our sustainability. Our commitment to diversity is fostered by the focus that GS Group places on diversity. GS Group's Global Inclusion and Diversity Committee continues to advance diversity efforts across all parts of the GS Group organization. In addition, GS Group has regional Inclusion and Diversity Committees which promote an environment that values different perspectives, challenges conventional thinking and maximizes the potential of all its people.

For both GS Group and ourselves, increased diversity, including diversity of experience, gender identity, race, ethnicity, sexual orientation, disability and veteran status, in addition to being a social imperative, is vital to our commercial success through the creativity that it fosters. For this reason, GS Group, including us, has established a comprehensive action plan with aspirational diversity hiring goals which are focused on cultivating an inclusive environment for all of its employees.

Diverse leadership is crucial to our long-term success and to driving innovation, and we benefit from the expanded outreach and career advancement programs for rising diverse executive talent that GS Group has implemented. For example, we are focused on providing diverse vice presidents the necessary coaching, sponsorship and advocacy to support their career trajectories and strengthen their leadership platforms, including through programs such as GS Group's Vice President Career Investment Initiative focused on high-performing Black and Hispanic/Latinx VPs in the Americas and EMEA. Many other career development initiatives are aimed at fostering diverse talent at the analyst and associate level, including the Black Analyst and Associate Initiative, the Hispanic/Latinx Analyst Initiative and the Women's Career Strategies Initiative. GS Group has also established Inclusion Networks and Interest Forums that are open to all professionals at GS Group, including our professionals, to promote and advance connectivity, understanding, inclusion and diversity.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Talent Development and Retention

We seek to help our people achieve their full potential by investing in them and supporting a culture of continuous development. Our goals are to maximize individual capabilities, increase commercial effectiveness and innovation, reinforce our culture, expand professional opportunities, and help our people contribute positively to their communities.

Instilling our culture in all employees is a continuous process, in which training plays an important part. We offer our employees the opportunity to participate in ongoing educational offerings and periodic seminars through Goldman Sachs University. To accelerate their integration into our work environment, new hires have the opportunity to receive training before they start working and orientation programs with an emphasis on culture and networking, and nearly all employees participate in at least one training event each year. For our more senior employees, we provide guidance and training on how to manage people and projects effectively, exhibit strong leadership and exemplify our culture. We are also focused on developing a high performing, diverse leadership pipeline and career planning for our next generation of leaders. Our employees participate in a variety of programs which GS Group has established, which are aimed at employees' professional growth and support throughout their careers and as they evolve into leaders, including initiatives, such as the Vice President and Managing Director Leadership Acceleration Initiatives.

Enhancing our people's experience of internal mobility is a key focus, as we believe that this will inspire employees, help retain top talent and create diverse experiences to build future leaders.

Another important part of instilling our culture is our employee performance review process. Employees are reviewed by supervisors, co-workers and employees whom they supervise in a 360-degree review process that is integral to our team approach and includes an evaluation of an employee's performance with respect to risk management, protecting our reputation, adherence to GS Group's code of conduct, compliance and diversity and inclusion principles. Our approach to evaluating employee performance centers on providing robust, timely and actionable feedback that facilitates professional development. Our managers are expected to take an active coaching role with their teams. GS Group (including us) has implemented "The Three Conversations at GS" through which managers establish goals with their team members at the start of the year, check in mid- year on progress and then close out the year with a conversation on performance against goals.

We believe that our people value opportunities to contribute to their communities and that these opportunities enhance their job satisfaction. We also believe that being able to volunteer together with colleagues and participate in community organizations working on local service projects strengthens our people's bond with us. Community TeamWorks, GS Group's signature volunteering initiative in which our employees participate, enables our people to be part of high-impact, team- based volunteer opportunities, including projects coordinated with hundreds of nonprofit partner organizations worldwide.

Wellness

We recognize that for our people to be successful in the workplace they need support in their personal, as well as their professional lives, and our employees benefit from GS Group's policies and programs. GS Group has created a strong support framework for wellness, which is intended to enable all employees to better balance their roles at work and their responsibilities at home. In addition to providing 20 weeks of parental leave for all employees, GS Group provides other benefits to support the wellness of employees, including family care leave, bereavement leave and, for longer-tenured employees, an unpaid sabbatical leave. GS Group also continues to advance resilience programs, offering all of its people a range of counseling, coaching, medical advisory and personal wellness services. Availability of these resources during the coronavirus (COVID-19) pandemic has continued to evolve, including enhanced virtual offerings with the aim of maintaining the physical and mental well-being of our employees, enhancing their effectiveness and cohesiveness and providing them with greater opportunities to access support.

GS Group also introduced a COVID-1910-day family leave policy, available to all of its people globally, to care for family members due to COVID-19 related illness or meet childcare needs, including homeschooling. GS Group remains focused on facilitating the safe return of employees to offices, as circumstances permit, and employees in a number of locations around the world have returned to the office to varying degrees. Given that the situation regarding the COVID-19 pandemic varies geographically, the approach to transitioning back to the office is tailored to each location, and it evolves based on the specific conditions and requirements of each location. GS Group has comprehensive protocols in place, including regular testing, and will continue to be guided by a people-first approach as circumstances evolve.

In addition, to support the financial wellness of employees, GS Group offers a variety of resources that help them manage their personal financial health and decision-making, including financial education series, live and on-demand webinars, articles and interactive digital tools.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Competition

The financial services industry is intensely competitive. Our competitors are other institutions that originate bank and bridge loans, commercial and consumer and mortgage loans; provide transaction banking services and deposit-taking products, including consumer deposits; make markets in interest rate, currency, credit and other derivatives and in loans and other financial assets; and engage in leveraged finance and agency lending. We compete with institutions on a regional and product basis. We compete based on a number of factors, including transaction execution, client experience, products and services, innovation, reputation and price. In addition to financial institutions such as commercial banks, credit card issuers, broker-dealers and investment banking firms, our competitors also include consumer finance companies and financial technology and other internet-based financial companies. We and other banks also compete for deposits on the basis of the rates we offer. Increases in short-term interest rates are expected to result in more intense competition in deposit pricing.

We also face intense competition in attracting and retaining qualified employees. Our ability to continue to compete effectively has depended and will continue to depend upon our ability to attract new employees, retain and motivate our existing employees and to continue to compensate employees competitively amid intense public and regulatory scrutiny on the compensation practices of large financial institutions.

Regulation

We are supervised and regulated by the FRB, the NYDFS, the CFPB and the FDIC and are also regulated by the CFTC, SEC and Treasury Department in respect of our swap dealer, security-based swap dealer and government securities dealer activities, respectively. Our London branch is regulated by the FCA and PRA and our Tokyo branch is regulated by the Japan Financial Services Agency. On July 1, 2021, ownership of GSBE was transferred to GS Bank USA. GSBE is directly supervised by the ECB and additionally by BaFin and Deutsche Bundesbank in the context of the E.U. SSM. GSBE's branches and other offices are also subject to local regulation.

As a participant in the banking industry, we are subject to extensive regulation of, among other things, our lending (including origination of credit card loans) and deposit-taking activities, derivatives activities for purposes of market making and risk management, payment activities, capital adequacy, liquidity, funding, inter-affiliate transactions, loan servicing, the establishment of new businesses and implementation of new activities and the formation of new subsidiaries by both federal and state regulators and by foreign regulators in jurisdictions in which we operate. In addition, through GSBE, we engage in certain activities in the E.U., including underwriting and market making in debt and equity securities; financial advisory services; and asset and wealth management services. As a foreign bank subsidiary of GS Bank USA, GSBE is subject to limits on the nature and scope of its activities under the FRB's Regulation K, including limits on its underwriting and market making in equity securities based on GSBE's and/or our capital. The FRB, the NYDFS and the CFPB have significant discretion in connection with their supervisory, enforcement and examination policies. Any change in such policies, whether by the FRB, the NYDFS or the CFPB, or through legislation, could have a material adverse impact on our business, financial condition and operations.

New regulations have been adopted or are being considered by regulators and policy makers worldwide, as described below. The effects of any changes to the regulations affecting our businesses, including as a result of the proposals described below, are uncertain and will not be known until such changes are finalized and market practices and structures develop under the revised regulations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Regulatory and Other Matters" in Part II of this Annual Report for further information about regulatory developments impacting us.

As a result of the U.K.'s withdrawal from the E.U. (Brexit), the regulatory framework that governs transactions and business undertaken by GS Group's U.K. subsidiaries changed, especially in connection with transactions and business relating to the E.U. GSBE is incorporated and headquartered in Germany, and GS Group has moved certain activities there. For example, GS Group has moved a number of relationships with clients of GS Group's investment banking, global markets and wealth management businesses from U.K. subsidiaries to GSBE, and clients of GS Group's asset management business to GSBE; established access for GSBE to exchanges, clearing houses and depositories and other market infrastructure in the E.U.; established branches of GSBE in nine E.U. member states and in the U.K.; and strengthened the capital, personnel and other resources at GSBE.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Stress Tests and Capital Planning. Under rules adopted by the U.S. federal bank regulatory agencies, implementing 2018 amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), U.S. depository institutions with total consolidated assets between $100 billion and $250 billion are no longer required to submit annual company-run stress test results to their primary federal regulator, and we were not required to submit these stress test results in 2021 to our primary regulator, the FRB. As a result of growth of our balance sheet, we will be required to submit our annual stress test results in 2022. In addition to company- run stress testing requirements, we are also required to have our own Internal Capital Adequacy Assessment Process (ICAAP). GSBE also has its own capital and stress testing process, which incorporates internally designed stress tests and those required under German regulatory requirements and the ECB Guide to the ICAAP.

Prompt Corrective Action. The U.S. Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires the U.S. federal bank regulatory 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, such as us: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

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 requirements could also require a depository institution to raise capital. An institution also is prohibited from accepting, renewing or rolling over deposits by or through a "deposit broker" (as defined in FDICIA) unless the institution is well-capitalized. The FDIC may waive this prohibition if the institution is adequately capitalized; however, the prohibition cannot be waived if the institution is undercapitalized, significantly undercapitalized or critically undercapitalized.

An institution also is restricted with respect to the deposit interest rates it may offer if the institution is not well- capitalized. Ultimately, critically undercapitalized institutions are subject to the appointment of a receiver or conservator, as described in "Insolvency of an IDI" below.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Management and Regulatory Capital" in Part II of this Annual Report and Note 19 to the consolidated financial statements in Part III of this Annual Report for information about the quantitative requirements for a depository institution to be considered "well-capitalized."

Dividends. Dividends are reviewed and approved in accordance with our capital management policy. In addition, U.S. federal and state laws impose limitations on the payment of dividends by banks to their shareholders. In general, the amount of dividends that may be paid by us is limited to the lesser of the amounts calculated under a "recent earnings" test and an "undivided profits" test.

Under the recent earnings test, a dividend may not be paid if the total of all dividends declared by the entity in any calendar year is in excess of the current year's net income combined with the retained net income of the two preceding years, unless the entity obtains prior regulatory approval. Under the undivided profits test, a dividend may not be paid in excess of the entity's undivided profits (generally, accumulated net profits that have not been paid out as dividends or transferred to surplus).

In addition to the recent earnings test and undivided profits test, capital management decisions are also driven by our capital management policy, which establishes guidelines to assist us in maintaining the appropriate level of capital in both business-as-usual and post-stress conditions.

During the year ended December 2021, we declared and paid approximately $33.00 billion of dividends to Group Inc., substantially all of which related to the acquisition of GSBE in July 2021. As a result of making these dividend payments, we cannot currently declare any dividends without prior regulatory approval. We did not pay a dividend to Group Inc. during the year ended December 2020. Under the recent earnings test and undivided profits test, we could have declared dividends to Group Inc. of up to $4.66 billion as of December 2020.

The applicable U.S. banking regulators have authority to prohibit or limit the payment of dividends if, in the banking regulator's opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Insolvency of an IDI. Under the Federal Deposit Insurance Act of 1950 (FDIA), if the FDIC is appointed as conservator or receiver for an IDI such as us, upon its insolvency or in certain other events, the FDIC has broad powers, including the power:

In addition, the claims of holders of domestic deposit liabilities and certain claims for administrative expenses against an IDI would be afforded a priority over other general unsecured claims, including claims of debtholders of the institution, in the "liquidation or other resolution" of such an institution by any receiver. As a result, whether or not the FDIC ever sought to repudiate any of our debt obligations, the debtholders (other than depositors at U.S. branches) would be treated differently from, and could receive, if anything, substantially less than, our depositors at our U.S. branches.

Resolution Plans. We are required to submit to the FDIC a periodic plan for our rapid and orderly resolution in the event of material financial distress or failure (resolution plan). The guidance applicable to covered IDIs, including us, requires that our resolution plan must, among other things, demonstrate that we are adequately protected from risks arising from Group Inc. and its other subsidiaries. The FDIC released an advanced notice of proposed rulemaking in April 2019 about potential changes to its resolution planning requirements for IDIs, including us, and delayed the next round of IDI resolution plan submissions until the rulemaking process is complete. Although the rulemaking process is still pending, in January 2021, the FDIC announced its intention to resume requiring resolution plan submissions for IDIs with $100 billion or more in assets, including us. In June 2021, the FDIC issued guidance for IDI resolution plans. The guidance splits covered IDIs into two groups for purposes of the timing of resolution plan submissions, and we are in the second group with a later submission date.

In addition, U.S. global systemically important banks (G- SIBs), including Group Inc., are required by the FRB and FDIC to submit resolution plans on a two-year cycle (alternating between full and targeted submissions). We are included as a material operating entity within Group Inc.'s 2021 resolution plan, which was submitted in June 2021, and is expected to be included as a material operating entity within Group Inc.'s next required submission, which is a full submission due by July 1, 2023.

If these regulators jointly determine that a BHC has failed to remediate identified shortcomings in its resolution plan or that its resolution plan, after any permitted resubmission, is not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, they may jointly impose more stringent capital, leverage or liquidity requirements or restrictions on growth, activities or operations or may jointly order a BHC to divest assets or operations, in order to facilitate orderly resolution in the event of failure, any of which may impact us.

The U.S. federal bank regulatory agencies have rules imposing restrictions on qualified financial contracts (QFCs) entered into by G-SIBs, including their subsidiaries. These rules are intended to facilitate the orderly resolution of a failed G-SIB by limiting the ability of the G-SIB to enter into a QFC unless

The ISDA Universal Protocol imposes a stay on certain cross- default and early termination rights within standard ISDA derivative contracts and securities financing transactions between adhering parties in the event that one of them is subject to resolution in its home jurisdiction, including a resolution under OLA or the FDIA in the U.S. The U.S. ISDA Protocol, which was based on the ISDA Universal Protocol, was created to allow market participants to comply with the final QFC rules adopted by the federal bank regulatory agencies.

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The Goldman Sachs Group Inc. published this content on 02 August 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 August 2024 11:39:03 UTC.