the goldman sachs group, inc. · references to “the 2015 form 10-k” are to our annual report on...

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-KANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015 Commission File Number: 001-14965

The Goldman Sachs Group, Inc.(Exact name of registrant as specified in its charter)

Delaware 13-4019460(State or other jurisdiction of

incorporation or organization)(I.R.S. Employer

Identification No.)

200 West Street 10282New York, N.Y.

(Address of principal executive offices)(Zip Code)

(212) 902-1000(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:Title of each class: Name of each exchange on which registered:

Common stock, par value $.01 per share New York Stock ExchangeDepositary Shares, Each Representing 1/1,000th Interest in a Share of Floating RateNon-Cumulative Preferred Stock, Series A New York Stock ExchangeDepositary Shares, Each Representing 1/1,000th Interest in a Share of 6.20%Non-Cumulative Preferred Stock, Series B New York Stock ExchangeDepositary Shares, Each Representing 1/1,000th Interest in a Share of Floating RateNon-Cumulative Preferred Stock, Series C New York Stock ExchangeDepositary Shares, Each Representing 1/1,000th Interest in a Share of Floating RateNon-Cumulative Preferred Stock, Series D New York Stock ExchangeDepositary Shares, Each Representing 1/1,000th Interest in a Share of Floating RateNon-Cumulative Preferred Stock, Series I New York Stock ExchangeDepositary Shares, Each Representing 1/1,000th Interest in a Share of 5.50%Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series J New York Stock ExchangeDepositary Shares, Each Representing 1/1,000th Interest in a Share of 6.375%Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series K New York Stock ExchangeSee Exhibit 99.2 for debt and trust securities registered under Section 12(b) of the Act

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive DataFile required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of the AnnualReport on Form 10-K or any amendment to the Annual Report on Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of June 30, 2015, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant wasapproximately $88.6 billion.

As of February 5, 2016, there were 422,349,543 shares of the registrants common stock outstanding.

Documents incorporated by reference: Portions of The Goldman Sachs Group, Inc.s Proxy Statement for its 2016 Annual Meeting ofShareholders are incorporated by reference in the Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

THE GOLDMAN SACHS GROUP, INC.ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015

INDEX

Form 10-K Item Number Page No.PART I 1Item 1 Business 1

Introduction 1Our Business Segments and Segment Operating Results 1

Investment Banking 2Institutional Client Services 3Investing & Lending 5Investment Management 5

Business Continuity and Information Security 6Employees 6Competition 6Regulation 8Available Information 23Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995 24

Item 1A Risk Factors 25Item 1B Unresolved Staff Comments 44Item 2 Properties 44Item 3 Legal Proceedings 44Item 4 Mine Safety Disclosures 44

Executive Officers of The Goldman Sachs Group, Inc. 45PART II 46Item 5 Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities 46Item 6 Selected Financial Data 46Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations 47Item 7A Quantitative and Qualitative Disclosures About Market Risk 112Item 8 Financial Statements and Supplementary Data 113Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 215Item 9A Controls and Procedures 215Item 9B Other Information 215PART III 215Item 10 Directors, Executive Officers and Corporate Governance 215Item 11 Executive Compensation 215Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters 216Item 13 Certain Relationships and Related Transactions, and Director Independence 216Item 14 Principal Accounting Fees and Services 216PART IV 217Item 15 Exhibits, Financial Statement Schedules 217SIGNATURES II-1

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

PART I

Item 1. Business

Introduction

Goldman Sachs is a leading global investment banking,securities and investment management firm that provides awide range of financial services to a substantial anddiversified client base that includes corporations, financialinstitutions, governments and individuals.

When we use the terms Goldman Sachs, the firm,we, us and our, we mean The Goldman SachsGroup, Inc. (Group Inc. or parent company), a Delawarecorporation, and its consolidated subsidiaries.

References to the 2015 Form 10-K are to our AnnualReport on Form 10-K for the year endedDecember 31, 2015. All references to 2015, 2014 and 2013refer to our years ended, or the dates, as the contextrequires, December 31, 2015, December 31, 2014 andDecember 31, 2013, respectively.

Group Inc. is a bank holding company and a financialholding company regulated by the Board of Governors ofthe Federal Reserve System (Federal Reserve Board). OurU.S. depository institution subsidiary, Goldman Sachs BankUSA (GS Bank USA), is a New York State-chartered bank.

As of December 2015, we had offices in over 30 countriesand 48% of our total staff was based outside the Americas.Our clients are located worldwide, and we are an activeparticipant in financial markets around the world. In 2015,we generated 44% of our net revenues outside theAmericas. For more information about our geographicresults, see Note 25 to the consolidated financial statementsin Part II, Item 8 of the 2015 Form 10-K.

Our Business Segments and SegmentOperating Results

We report our activities in four business segments:Investment Banking, Institutional Client Services,Investing & Lending and Investment Management. Thechart below presents our four business segments.

Equities

Investment BankingInstitutional Client

ServicesInvesting & Lending

FinancialAdvisory

Equity Securities

UnderwritingDebt Securities

and Loans

InvestmentManagement

Management andOther Fees

Incentive Fees

TransactionRevenues

EquityUnderwriting

DebtUnderwriting

SecuritiesServices

Equities ClientExecution

Commissionsand Fees

Firmwide

Fixed Income, Currencyand CommoditiesClient Execution

Goldman Sachs 2015 Form 10-K 1


The table below presents our segment operating results.

Year Ended December 1 % of 2015Net

Revenues$ in millions 2015 2014 2013

Investment BankingNet revenues $ 7,027 $ 6,464 $ 6,004 21%Operating expenses 3,713 3,688 3,479Pre-tax earnings $ 3,314 $ 2,776 $ 2,525

Institutional Client ServicesNet revenues $15,151 $15,197 $15,721 45%Operating expenses 2 13,938 10,880 11,792Pre-tax earnings $ 1,213 $ 4,317 $ 3,929

Investing & LendingNet revenues $ 5,436 $ 6,825 $ 7,018 16%Operating expenses 2,402 2,819 2,686Pre-tax earnings $ 3,034 $ 4,006 $ 4,332

Investment ManagementNet revenues $ 6,206 $ 6,042 $ 5,463 18%Operating expenses 4,841 4,647 4,357Pre-tax earnings $ 1,365 $ 1,395 $ 1,106

Total net revenues $33,820 $34,528 $34,206Total operating expenses 3 25,042 22,171 22,469Total pre-tax earnings $ 8,778 $12,357 $11,737

1. Financial information concerning our business segments for 2015, 2014 and2013 is included in Managements Discussion and Analysis of FinancialCondition and Results of Operations and the Financial Statements andSupplementary Data, which are in Part II, Items 7 and 8, respectively, of the2015 Form 10-K. See Note 25 to the consolidated financial statements inPart II, Item 8 of the 2015 Form 10-K for a summary of our total netrevenues, pre-tax earnings and net earnings by geographic region.

2. Includes provisions of $3.37 billion recorded during 2015 for the agreementin principle with the Residential Mortgage-Backed Securities Working Groupof the U.S. Financial Fraud Enforcement Task Force (RMBS Working Group).See Note 27 to the consolidated financial statements in Part II, Item 8 of the2015 Form 10-K for further information about this agreement in principle.

3. Includes charitable contributions that have not been allocated to oursegments of $148 million for 2015, $137 million for 2014 and $155 million for2013.

Investment BankingInvestment Banking serves public and private sector clientsaround the world. We provide financial advisory servicesand help companies raise capital to strengthen and growtheir businesses. We seek to develop and maintain long-term relationships with a diverse global group ofinstitutional clients, including governments, states andmunicipalities. Our goal is to deliver to our institutionalclients the entire resources of the firm in a seamless fashion,with investment banking serving as the main initial point ofcontact with Goldman Sachs.

Financial Advisory. Financial Advisory includes strategicadvisory assignments with respect to mergers andacquisitions, divestitures, corporate defense activities,restructurings, spin-offs and risk management. Inparticular, we help clients execute large, complextransactions for which we provide multiple services,including cross-border structuring expertise. FinancialAdvisory also includes revenues from derivativetransactions directly related to these client advisoryassignments.

We also assist our clients in managing their asset andliability exposures and their capital.

Underwriting. The other core activity of InvestmentBanking is helping companies raise capital to fund theirbusinesses. As a financial intermediary, our job is to matchthe capital of our investing clients who aim to grow thesavings of millions of people with the needs of our publicand private sector clients who need financing to generategrowth, create jobs and deliver products and services. Ourunderwriting activities include public offerings and privateplacements, including local and cross-border transactionsand acquisition financing, of a wide range of securities andother financial instruments. Underwriting also includesrevenues from derivative transactions entered into withpublic and private sector clients in connection with ourunderwriting activities.

Equity Underwriting. We underwrite common andpreferred stock and convertible and exchangeablesecurities. We regularly receive mandates for large, complextransactions and have held a leading position in worldwidepublic common stock offerings and worldwide initial publicofferings for many years.

Debt Underwriting. We underwrite and originate varioustypes of debt instruments, including investment-grade andhigh-yield debt, bank loans and bridge loans, including inconnection with acquisition financing, and emerging- andgrowth-market debt, which may be issued by, amongothers, corporate, sovereign, municipal and agency issuers.In addition, we underwrite and originate structuredsecurities, which include mortgage-related securities andother asset-backed securities.

2 Goldman Sachs 2015 Form 10-K


Institutional Client ServicesInstitutional Client Services serves our clients who come tothe firm to buy and sell financial products, raise fundingand manage risk. We do this by acting as a market makerand offering market expertise on a global basis.Institutional Client Services makes markets and facilitatesclient transactions in fixed income, equity, currency andcommodity products. In addition, we make markets in andclear client transactions on major stock, options and futuresexchanges worldwide. Market makers provide liquidityand play a critical role in price discovery, which contributesto the overall efficiency of the capital markets. Ourwillingness to make markets, commit capital and take riskin a broad range of products is crucial to our clientrelationships.

Our clients are primarily institutions that are professionalmarket participants, including investment entities whoseultimate customers include individual investors investingfor their retirement, buying insurance or putting asidesurplus cash in a deposit account.

Through our global sales force, we maintain relationshipswith our clients, receiving orders and distributinginvestment research, trading ideas, market information andanalysis. As a market maker, we provide prices to clientsglobally across thousands of products in all major assetclasses and markets. At times we take the other side oftransactions ourselves if a buyer or seller is not readilyavailable and at other times we connect our clients to otherparties who want to transact. Much of this connectivitybetween the firm and its clients is maintained on technologyplatforms and operates globally wherever and whenevermarkets are open for trading.

Institutional Client Services and our other businesses aresupported by our Global Investment Research division,which, as of December 2015, provided fundamentalresearch on more than 3,400 companies worldwide andmore than 40 national economies, as well as on industries,currencies and commodities.

Institutional Client Services generates revenues in fourways:

In large, highly liquid markets (such as markets for U.S.Treasury bills, large capitalization S&P 500 stocks orcertain mortgage pass-through securities), we execute ahigh volume of transactions for our clients;

In less liquid markets (such as mid-cap corporate bonds,growth market currencies or certain non-agencymortgage-backed securities), we execute transactions forour clients for spreads and fees that are generallysomewhat larger than those charged in more liquidmarkets;

We also structure and execute transactions involvingcustomized or tailor-made products that address ourclients risk exposures, investment objectives or othercomplex needs (such as a jet fuel hedge for an airline); and

We provide financing to our clients for their securitiestrading activities, as well as securities lending and otherprime brokerage services.

Institutional Client Services activities are organized by assetclass and include both cash and derivativeinstruments. Cash refers to trading the underlyinginstrument (such as a stock, bond or barrel of oil).Derivative refers to instruments that derive their valuefrom underlying asset prices, indices, reference rates andother inputs, or a combination of these factors (such as anoption, which is the right or obligation to buy or sell acertain bond or stock index on a specified date in the futureat a certain price, or an interest rate swap, which is theagreement to convert a fixed rate of interest into a floatingrate or vice versa).



Fixed Income, Currency and Commodities ClientExecution. Includes interest rate products, credit products,mortgages, currencies and commodities.

Interest Rate Products. Government bonds, moneymarket instruments, treasury bills, repurchase agreementsand other highly liquid securities and instruments, as wellas interest rate swaps, options and other derivatives.

Credit Products. Investment-grade corporate securities,high-yield securities, credit derivatives, bank and bridgeloans, municipal securities, emerging market anddistressed debt, and trade claims.

Mortgages. Commercial mortgage-related securities,loans and derivatives, residential mortgage-relatedsecurities, loans and derivatives (including U.S.government agency-issued collateralized mortgageobligations, other prime, subprime and Alt-A securitiesand loans), and other asset-backed securities, loans andderivatives.

Currencies. Most currencies, including growth-marketcurrencies.

Commodities. Crude oil and petroleum products,natural gas, base, precious and other metals, electricity,coal, agricultural and other commodity products.

Equities. Includes equities client execution, commissionsand fees, and securities services.

Equities Client Execution. We make markets in equitysecurities and equity-related products, including convertiblesecurities, options, futures and over-the-counter (OTC)derivative instruments, on a global basis. As a principal, wefacilitate client transactions by providing liquidity to ourclients with large blocks of stocks or derivatives, requiringthe commitment of our capital.

We also structure and make markets in derivatives onindices, industry groups, financial measures and individualcompany stocks. We develop strategies and provideinformation about portfolio hedging and restructuring andasset allocation transactions for our clients. We also workwith our clients to create specially tailored instruments toenable sophisticated investors to establish or liquidateinvestment positions or undertake hedging strategies. Weare one of the leading participants in the trading anddevelopment of equity derivative instruments.

Our exchange-based market-making activities includemaking markets in stocks and exchange-traded funds,futures and options on major exchanges worldwide.

Commissions and Fees. We generate commissions andfees from executing and clearing institutional clienttransactions on major stock, options and futures exchangesworldwide, as well as OTC transactions. We provide ourclients with access to a broad spectrum of equity executionservices, including electronic low-touch access and morecomplex high-touch execution through both traditionaland electronic platforms.

Securities Services. Includes financing, securities lendingand other prime brokerage services.

Financing Services. We provide financing to our clientsfor their securities trading activities through margin loansthat are collateralized by securities, cash or otheracceptable collateral. We earn a spread equal to thedifference between the amount we pay for funds and theamount we receive from our client.

Securities Lending Services. We provide services thatprincipally involve borrowing and lending securities tocover institutional clients short sales and borrowingsecurities to cover our short sales and otherwise to makedeliveries into the market. In addition, we are an activeparticipant in broker-to-broker securities lending andthird-party agency lending activities.

Other Prime Brokerage Services. We earn fees byproviding clearing, settlement and custody servicesglobally. In addition, we provide our hedge fund andother clients with a technology platform and reportingwhich enables them to monitor their security portfoliosand manage risk exposures.



Investing & LendingOur investing and lending activities, which are typicallylonger-term, include the firms investing and relationshiplending activities across various asset classes, primarily debtsecurities and loans, public and private equity securities,and real estate. These activities include investing directly inpublicly and privately traded securities and in loans, andalso through certain investment funds and separateaccounts that we manage and through funds managed byexternal parties. We also provide financing to our clients.

Equity Securities. We make corporate, real estate andinfrastructure equity-related investments.

Debt Securities and Loans. We make corporate, realestate, infrastructure and other debt investments. Inaddition, we provide credit to corporate clients throughloan facilities and to individuals primarily through securedloans.

Investment ManagementInvestment Management provides investment and wealthadvisory services to help clients preserve and grow theirfinancial assets. Our clients include institutions and high-net-worth individuals, as well as retail investors whoprimarily access our products through a network of third-party distributors around the world.

We manage client assets across a broad range of assetclasses and investment strategies, including equity, fixedincome and alternative investments. Alternativeinvestments primarily include hedge funds, credit funds,private equity, real estate, currencies, commodities, andasset allocation strategies. Our investment offerings includethose managed on a fiduciary basis by our portfoliomanagers as well as strategies managed by third-partymanagers. We offer our investments in a variety ofstructures, including separately managed accounts, mutualfunds, private partnerships, and other commingled vehicles.

We also provide customized investment advisory solutionsdesigned to address our clients investment needs. Thesesolutions begin with identifying clients objectives andcontinue through portfolio construction, ongoing assetallocation and risk management and investment realization.We draw from a variety of third-party managers as well asour proprietary offerings to implement solutions for clients.

We supplement our investment advisory solutions for high-net-worth clients with wealth advisory services that includeincome and liability management, trust and estate planning,philanthropic giving and tax planning. We also use thefirms global securities and derivatives market-makingcapabilities to address clients specific investment needs.

Management and Other Fees. The majority of revenuesin management and other fees is comprised of asset-basedfees on client assets. The fees that we charge vary by assetclass and are affected by investment performance as well asasset inflows and redemptions. Other fees we receiveinclude financial counseling fees generated through ourwealth advisory services and fees related to theadministration of real estate assets.

Assets under supervision include assets under managementand other client assets. Assets under management includeclient assets where we earn a fee for managing assets on adiscretionary basis. This includes net assets in our mutualfunds, hedge funds, credit funds and private equity funds(including real estate funds), and separately managedaccounts for institutional and individual investors. Otherclient assets include client assets invested with third-partymanagers, bank deposits and advisory relationships wherewe earn a fee for advisory and other services, but do nothave investment discretion. Assets under supervision do notinclude the self-directed brokerage assets of our clients.Long-term assets under supervision represent assets undersupervision excluding liquidity products. Liquidityproducts represent money market and bank deposit assets.



Incentive Fees. In certain circumstances, we are alsoentitled to receive incentive fees based on a percentage of afunds or a separately managed accounts return, or whenthe return exceeds a specified benchmark or otherperformance targets. Such fees include overrides, whichconsist of the increased share of the income and gainsderived primarily from our private equity funds when thereturn on a funds investments over the life of the fundexceeds certain threshold returns. Incentive fees arerecognized only when all material contingencies areresolved.

Transaction Revenues. We receive commissions and netspreads for facilitating transactional activity in high-net-worth client accounts. In addition, we earn net interestincome primarily associated with client deposits andmargin lending activity undertaken by such clients.

Business Continuity and InformationSecurity

Business continuity and information security, includingcyber security, are high priorities for Goldman Sachs. Theirimportance has been highlighted by numerous highlypublicized cyber attacks against financial institutions andlarge consumer-based companies in recent years thatresulted in the unauthorized disclosure of personalinformation of clients and customers and the theft anddestruction of corporate information, as well as extremeweather events, such as Hurricane Sandy.

Our Business Continuity Program has been developed toprovide reasonable assurance of business continuity in theevent of disruptions at the firms critical facilities and tocomply with regulatory requirements, including those ofFINRA. Because we are a bank holding company, ourBusiness Continuity Program is also subject to review bythe Federal Reserve Board. The key elements of theprogram are crisis planning and management, peoplerecovery, business recovery, systems and data recovery, andprocess improvement. In the area of information security,we have developed and implemented a framework ofprinciples, policies and technology to protect theinformation provided to us by our clients and that of thefirm from cyber attacks and other misappropriation,corruption or loss. Safeguards are applied to maintain theconfidentiality, integrity and availability of information.

Employees

Management believes that a major strength and principalreason for the success of Goldman Sachs is the quality anddedication of our people and the shared sense of being partof a team. We strive to maintain a work environment thatfosters professionalism, excellence, diversity, cooperationamong our employees worldwide and high standards ofbusiness ethics.

Instilling the Goldman Sachs culture in all employees is acontinuous process, in which training plays an importantpart. All employees are offered the opportunity toparticipate in education and periodic seminars that wesponsor at various locations throughout the world. Anotherimportant part of instilling the Goldman Sachs culture isour employee review process. Employees are reviewed bysupervisors, co-workers and employees they supervise in a360-degree review process that is integral to our teamapproach, and includes an evaluation of an employeesperformance with respect to risk management, complianceand diversity. As of December 2015, we had 36,800 totalstaff.

Competition

The financial services industry and all of ourbusinesses are intensely competitive, and we expect themto remain so. Our competitors are other entities thatprovide investment banking, securities and investmentmanagement services, as well as those entities that makeinvestments in securities, commodities, derivatives, realestate, loans and other financial assets. These entitiesinclude brokers and dealers, investment banking firms,commercial banks, insurance companies, investmentadvisers, mutual funds, hedge funds, private equity fundsand merchant banks. We compete with some entitiesglobally and with others on a regional, product or nichebasis. Our competition is based on a number of factors,including transaction execution, products and services,innovation, reputation and price.



There has been substantial consolidation and convergenceamong companies in the financial services industry.Moreover, we have faced, and expect to continue to face,pressure to retain market share by committing capital tobusinesses or transactions on terms that offer returns thatmay not be commensurate with their risks. In particular,corporate clients seek such commitments (such asagreements to participate in their loan facilities) fromfinancial services firms in connection with investmentbanking and other assignments.

Consolidation and convergence have significantly increasedthe capital base and geographic reach of some of ourcompetitors, and have also hastened the globalization of thesecurities and other financial services markets. As a result,we have had to commit capital to support our internationaloperations and to execute large global transactions. To takeadvantage of some of our most significant opportunities,we will have to compete successfully with financialinstitutions that are larger and have more capital and thatmay have a stronger local presence and longer operatinghistory outside the United States. We also compete withsmaller institutions that offer more targeted services, suchas independent advisory firms. Some clients may perceivethese firms to be less susceptible to potential conflicts ofinterest than we are, and, as described below, our ability toeffectively compete with them could be affected byregulations and limitations on activities that apply to us butmay not apply to them.

A number of our businesses are subject to intense pricecompetition. Efforts by our competitors to gain marketshare have resulted in pricing pressure in our investmentbanking and client execution businesses and could result inpricing pressure in other of our businesses. For example, theincreasing volume of trades executed electronically,through the internet and through alternative tradingsystems, has increased the pressure on trading commissions,in that commissions for electronic trading are generallylower than for non-electronic trading. It appears that thistrend toward low-commission trading will continue. Inaddition, we believe that we will continue to experiencecompetitive pressures in these and other areas in the futureas some of our competitors seek to obtain market share byfurther reducing prices, and as we enter into or expand ourpresence in markets that may rely more heavily onelectronic trading and execution, such as consumer-oriented deposit-taking activities.

The provisions of the U.S. Dodd-Frank Wall Street Reformand Consumer Protection Act (Dodd-Frank Act), therequirements promulgated by the Basel Committee onBanking Supervision (Basel Committee) and other financialregulation could affect our competitive position to theextent that limitations on activities, increased fees andcompliance costs or other regulatory requirements do notapply, or do not apply equally, to all of our competitors orare not implemented uniformly across differentjurisdictions. For example, the provisions of the Dodd-Frank Act that prohibit proprietary trading and restrictinvestments in certain hedge and private equity fundsdifferentiate between U.S.-based and non-U.S.-basedbanking organizations and give non-U.S.-based bankingorganizations greater flexibility to trade outside of theUnited States and to form and invest in funds outside theUnited States. Likewise, the obligations with respect toderivative transactions under Title VII of the Dodd-FrankAct depend, in part, on the location of the counterparties tothe transaction. The impact of the Dodd-Frank Act andother regulatory developments on our competitive positionwill depend to a large extent on the manner in which therequired rulemaking and regulatory guidance evolve, theextent of international convergence, and the developmentof market practice and structures under the new regulatoryregimes as described further under Regulation below.

We also face intense competition in attracting and retainingqualified employees. Our ability to continue to competeeffectively will depend upon our ability to attract newemployees, retain and motivate our existing employees andto continue to compensate employees competitively amidintense public and regulatory scrutiny on the compensationpractices of large financial institutions. Our pay practicesand those of certain of our competitors are subject toreview by, and the standards of, the Federal Reserve Boardand other regulators inside and outside the United States,including the Prudential Regulation Authority (PRA) andthe Financial Conduct Authority (FCA) in the UnitedKingdom. We also compete for employees with institutionswhose pay practices are not subject to regulatory oversight.See Regulation Compensation Practices below andRisk Factors Our businesses may be adversely affectedif we are unable to hire and retain qualified employees inPart I, Item 1A of the 2015 Form 10-K for moreinformation about the regulation of our compensationpractices.



Regulation

As a participant in the financial services industry, we aresubject to extensive regulation worldwide. Our businesseshave been subject to increasing regulation and supervisionin the United States and other countries, and we expect thistrend to continue in the future.

In particular, the Dodd-Frank Act, and the rulesthereunder, significantly altered the financial regulatoryregime within which we operate. The capital, liquidity andleverage ratios based on the Basel Committees final capitalframework for strengthening international capitalstandards (Basel III), as implemented by the FederalReserve, the PRA and FCA and other national regulatorshave also had a significant impact on our businesses. Theimplications of such regulations for our businesses continueto depend to a large extent on their implementation by therelevant regulators globally, as well as the development ofmarket practices and structures under the regimeestablished by such regulations. Other reforms have beenadopted or are being considered by regulators and policymakers worldwide, as described further throughout thissection.

Banking Supervision and RegulationGroup Inc. is a bank holding company under the BankHolding Company Act of 1956 (BHC Act), a financialholding company under amendments to the BHC Acteffected by the U.S. Gramm-Leach-Bliley Act of 1999 (GLBAct) and is subject to supervision and examination by theFederal Reserve Board.

Under the system of functional regulation establishedunder the BHC Act, the Federal Reserve Board serves as theprimary regulator of our consolidated organization. Theprimary regulators of our U.S. non-bank subsidiariesdirectly regulate the activities of those subsidiaries, with theFederal Reserve Board exercising a supervisory role. Suchfunctionally regulated U.S. non-bank subsidiaries includebroker-dealers registered with the SEC, such as ourprincipal U.S. broker-dealer, Goldman, Sachs & Co.(GS&Co.), entities registered with or regulated by the U.S.Commodity Futures Trading Commission (CFTC) withrespect to futures-related and swaps-related activities andinvestment advisers registered with the SEC with respect totheir investment advisory activities.

Various of our subsidiaries are regulated by the bankingand securities regulatory authorities of the countries inwhich they operate.

Our principal U.S. bank subsidiary, GS Bank USA, issupervised and regulated by the Federal Reserve Board, theFDIC, the New York State Department of FinancialServices and the Consumer Financial Protection Bureau(CFPB). A number of our activities are conducted partiallyor entirely through GS Bank USA and its subsidiaries,including: origination of bank loans; interest rate, credit,currency and other derivatives; leveraged finance; mortgageorigination; structured finance; deposit-taking; and agencylending.

In addition, Group Inc. has two limited purpose trustcompany subsidiaries that are not permitted to acceptdeposits or make loans (other than as incidental to theirtrust activities) and are not insured by the FDIC. TheGoldman Sachs Trust Company, N.A., a national bankingassociation that is limited to fiduciary activities, is regulatedby the Office of the Comptroller of the Currency and is amember bank of the Federal Reserve System. The GoldmanSachs Trust Company of Delaware, a Delaware limitedpurpose trust company, is regulated by the Office of theDelaware State Bank Commissioner.

Goldman Sachs International Bank (GSIB), our regulatedU.K. bank and principal non-U.S. bank subsidiary, isregulated by the PRA and the FCA. GSIB acts as a primarydealer for European government bonds and is involved inmarket making in European government bonds, lending(including securities lending) and deposit-taking activities.

In November 2014, a new Single Supervisory Mechanismbecame effective, under which the European Central Bankand national supervisors both have certain regulatoryresponsibilities for banks in participating EU memberstates. While the U.K. does not participate in this newmechanism, it gives new powers to the European CentralBank to take regulatory action with regard to the firmsbanks in Germany and France.



Capital, Leverage and Liquidity Requirements. We aresubject to consolidated regulatory capital and leveragerequirements set forth by the Federal Reserve Board, andGS Bank USA is subject to capital and leveragerequirements that are calculated in substantially the samemanner as those applicable to Group Inc., also set forth bythe Federal Reserve Board.

Under the Federal Reserve Boards capital adequacyrequirements, Group Inc. must meet specific regulatorycapital requirements that involve quantitative measures ofassets, liabilities and certain off-balance-sheet items. Thesufficiency of our capital levels is also subject to qualitativejudgments by regulators. We are also subject to liquidityrequirements established by the U.S. federal bankregulatory agencies.

Capital Ratios. We are subject to the Federal ReserveBoards revised risk-based capital and leverage ratioregulations, inclusive of certain transitional provisions(Revised Capital Framework). These regulations are largelybased on Basel III, and also implement certain provisions ofthe Dodd-Frank Act. Under the Revised CapitalFramework, we are an Advanced approach bankingorganization. The Revised Capital Framework provides forcapital buffers (including surcharges) that phase in overtime, including a capital conservation buffer, and a globalsystemically important bank (G-SIB) surcharge describedbelow, as well as a counter-cyclical capital buffer.

In July 2015, the Federal Reserve Board approved finalrules establishing a capital surcharge for U.S. G-SIBs. Forthese institutions, the final rules implement the frameworkdeveloped by the Basel Committee for assessing the globalsystemic importance of banking institutions anddetermining the range of additional Common Equity Tier 1(CET1) that should be maintained by those deemed to beG-SIBs.

The Federal Reserve Boards framework results insurcharges initially ranging from 1% to 4.5%. The finalrules treat the Basel Committees methodology as a floor(Method One) and introduce an alternative calculation todetermine the applicable surcharge (Method Two), whichincludes a significantly higher surcharge for systemic riskand, as part of the calculation of the applicable surcharge,replaces the Basel Committees indicator for substitutabilitywith a new indicator based on a U.S. G-SIBs use of short-term wholesale funding. Under the Federal Reserve Boardsfinal rules, G-SIBs are required to meet the capitalsurcharges on a phased-in basis beginning in 2016 throughJanuary 1, 2019.

The Revised Capital Framework also provides a counter-cyclical capital buffer of up to 2.5% (and also consistingentirely of CET1), to be imposed in the event that nationalsupervisors deem it necessary in order to counteractexcessive credit growth. The Federal Reserve Board hasproposed, but not yet finalized, its policy for setting thecounter-cyclical capital buffer, and several other nationalsupervisors have started to implement this counter-cyclicalbuffer. The buffer applicable to us could change in thefuture and, as a result, the minimum ratios we are subject tocould increase.

GS Bank USA computes its capital ratios in accordancewith the Revised Capital Framework as an Advancedapproach banking organization.

The Basel Committee has published final guidelines forcalculating incremental capital requirements for domesticsystemically important banking institutions (D-SIBs). Theseguidelines are complementary to the framework outlinedabove for G-SIBs, but are more principles-based in order toprovide an appropriate degree of national discretion. Theimpact of these guidelines on the regulatory capitalrequirements of GS Bank USA and other subsidiaries willdepend on how they are implemented by the banking andnon-banking regulators in the United States and otherjurisdictions.

In January 2016, the Basel Committee finalized a revisedframework for calculating minimum capital requirementsfor market risk, which is expected to increase market riskcapital requirements for most banking organizations. Therevised framework, among other things: modifies theboundary between the trading book and banking book;replaces value at risk (VaR) and stressed VaRmeasurements in the internal models approach with anexpected shortfall measure that is intended to reflect tailand liquidity risks not captured by VaR; revises the modelreview and approval process; limits the capital-reducingeffects of hedging and portfolio diversification in theinternal models approach; provides that securitizationexposures will be measured using only the Standardizedapproach; and makes significant revisions to themethodology for capital requirements under theStandardized approach. The effective date for firstreporting under the revised framework isDecember 31, 2019. The U.S. federal bank regulatoryagencies have not yet proposed regulations implementingthe revised requirements for U.S. banking organizations.



The Basel Committee has issued a series of updates whichpropose other changes to capital regulations. In particular,it has finalized a revised standard approach for calculatingRWAs for counterparty credit risk on derivatives exposures(Standardized Approach for measuring CounterpartyCredit Risk exposures, known as SA-CCR). In addition,it has published guidelines for measuring and controllinglarge exposures (Supervisory Framework for measuringand controlling Large Exposures), and issued an updatedframework for regulatory capital treatment of bankingbook securitizations.

The Basel Committee has also issued consultation paperson, among other matters, a Review of Interest Rate Risk inthe Banking Book, a Review of the Credit ValuationAdjustment Risk Framework, revisions to the BaselStandardized approach for credit risk and operational riskcapital, and the design of a capital floor framework basedon the revised Standardized approach.

See Managements Discussion and Analysis of FinancialCondition and Results of Operations Equity CapitalManagement and Regulatory Capital in Part II, Item 7 ofthe 2015 Form 10-K and Note 20 to the consolidatedfinancial statements in Part II, Item 8 of the 2015Form 10-K for information about CET1, CET1 ratio, Tier 1capital, Tier 1 capital ratio, Total capital, Total capitalratio, risk-weighted assets (RWAs), and for informationabout minimum required ratios, as well as applicablecapital buffers and surcharges.

Leverage Ratios. Under the Revised Capital Framework,we and GS Bank USA are subject to Tier 1 leveragerequirements established by the Federal Reserve Board. TheRevised Capital Framework also introduced asupplementary leverage ratio for Advanced approachbanking organizations effective January 1, 2018.

See Managements Discussion and Analysis of FinancialCondition and Results of Operations Equity CapitalManagement and Regulatory Capital in Part II, Item 7 ofthe 2015 Form 10-K and Note 20 to the consolidatedfinancial statements in Part II, Item 8 of the 2015Form 10-K for information about our Tier 1 leverage ratioand supplementary leverage ratio.

Liquidity Ratios. The Basel Committees internationalframework for liquidity risk measurement, standards andmonitoring requires banking organizations to measure theirliquidity against two specific liquidity tests.

The liquidity coverage ratio (LCR) is designed to ensurethat the entity maintains an adequate level ofunencumbered high-quality liquid assets based on expectednet cash outflows under an acute short-term liquidity stressscenario. The U.S. federal bank regulatory agencies rulesimplementing the LCR for Advanced approach bankingorganizations are generally consistent with the BaselCommittees framework, but include acceleratedtransitional provisions and more stringent requirementsrelated to both the range of assets that qualify as high-quality liquid assets and cash outflow assumptions forcertain types of funding and other liquidity risks.

Under the accelerated transition timeline, the LCR becameeffective in the United States on January 1, 2015, with aphase-in period whereby firms, including Group Inc. andGS Bank USA, must have an 80% and 90% minimum ratioin 2015 and 2016, respectively, and a 100% minimum ratiocommencing in 2017. In November 2015, the FederalReserve Board proposed a rule that would require bankholding companies to disclose their LCR on a quarterlybasis beginning in the quarter ended September 2016.These requirements include LCR averages over the priorquarter, detailed information on certain components of theLCR calculation and projected net cash outflows. SeeManagements Discussion and Analysis of FinancialCondition and Results of Operations RiskManagement Liquidity Risk Management in Part II,Item 7 of the 2015 Form 10-K for information about theLCR.

The LCR rule issued by the U.K. regulatory authoritiesbecame effective in the United Kingdom onOctober 1, 2015, with a phase-in period whereby certainfinancial institutions, including Goldman SachsInternational (GSI), our regulated U.K. broker-dealersubsidiary, must have an 80% minimum ratio initially,increasing to 90% on January 1, 2017 and 100% onJanuary 1, 2018.

The net stable funding ratio (NSFR) is designed to promotemore medium- and long-term stable funding of the assetsand off-balance-sheet activities of banking organizationsover a one-year time horizon. Under the Basel Committeeframework, the NSFR will be effective on January 1, 2018.The U.S. federal bank regulatory agencies and the U.K.regulatory authorities have not yet proposed rulesimplementing the NSFR for U.S. banks and bank holdingcompanies, and U.K. financial institutions, respectively.



Since January 1, 2015, the enhanced prudential standardsimplemented by the Federal Reserve Board under the Dodd-Frank Act have required bank holding companies with$50 billion or more in total consolidated assets to complywith enhanced liquidity and overall risk managementstandards, including a buffer of highly liquid assets basedon projected funding needs for 30 days, and increasedinvolvement by boards of directors in liquidity and overallrisk management. Although the liquidity buffer under theserules has some similarities to the LCR (and is described bythe agencies as complementary to the LCR), it is a separaterequirement that is in addition to the LCR. SeeManagements Discussion and Analysis of FinancialCondition and Results of Operations RiskManagement Overview and Structure of RiskManagement and Liquidity Risk Management inPart II, Item 7 of the 2015 Form 10-K for informationabout our risk management practices and liquidity.

Stress Tests. Bank holding companies with totalconsolidated assets of $50 billion or more are subject toDodd-Frank Act supervisory stress tests conducted by theFederal Reserve Board and semi-annual company-run stresstests. The stress test rules require increased involvement byboards of directors in stress testing and public disclosure ofthe results of both the Federal Reserve Boards annual stresstests and a bank holding companys annual supervisorystress tests, and semi-annual internal stress tests.

We publish summaries of our annual and mid-cycle stresstests results on our web site as described under AvailableInformation below. Our annual Dodd-Frank Act stresstest submission is incorporated into the annual capital plansthat we are required to submit to the Federal Reserve Boardas part of the Comprehensive Capital Analysis and Review(CCAR). The purpose of CCAR is to ensure that large bankholding companies have robust, forward-looking capitalplanning processes that account for each institutionsunique risks and that permit continued operations duringtimes of economic and financial stress. As part of CCAR,the Federal Reserve Board evaluates an institutions plan tomake capital distributions, such as repurchasing orredeeming stock or increasing dividend payments, across arange of macroeconomic and firm-specific assumptions.

Similar to Group Inc., GS Bank USA is required to conductstress tests on an annual basis, to submit the results to theFederal Reserve Board, and to make a summary of thoseresults public. The rules require that the board of directorsof GS Bank USA, among other things, consider the resultsof the stress tests in the normal course of the banksbusiness including, but not limited to, its capital planning,assessment of capital adequacy and risk managementpractices.

Dividends and Stock Repurchases. Federal and statelaws impose limitations on the payment of dividends by ourU.S. depository institution subsidiaries to Group Inc. Ingeneral, the amount of dividends that may be paid by GSBank USA or our national bank trust company subsidiary islimited to the lesser of the amounts calculated under arecent earnings test and an undivided profits test.Under the recent earnings test, a dividend may not be paid ifthe total of all dividends declared by the entity in anycalendar year is in excess of the current years net incomecombined with the retained net income of the twopreceding years, unless the entity obtains prior regulatoryapproval. Under the undivided profits test, a dividend maynot be paid in excess of the entitys undivided profits(generally, accumulated net profits that have not been paidout as dividends or transferred to surplus).

The banking regulators have authority to prohibit or limitthe payment of dividends if, in the banking regulatorsopinion, payment of a dividend would constitute an unsafeor unsound practice in light of the financial condition of thebanking organization. The BHC Act prohibits the FederalReserve Board from requiring a payment by a holdingcompany subsidiary to a depository institution if thefunctional regulator of that subsidiary objects to suchpayment. In such a case, the Federal Reserve Board couldinstead require the divestiture of the depository institutionand impose operating restrictions pending the divestiture.

Dividend payments by Group Inc. to its shareholders andstock repurchases by Group Inc. are subject to the oversightof the Federal Reserve Board. The dividend and sharerepurchase policies of large bank holding companies, suchas Group Inc., are reviewed by the Federal Reserve Boardthrough the CCAR process, based on capital plans andstress tests submitted by the bank holding company, andare assessed against, among other things, the bank holdingcompanys ability to meet and exceed minimum regulatorycapital ratios under stressed scenarios, its expected sourcesand uses of capital over the planning horizon under baselineand stressed scenarios, and any potential impact of changesto its business plan and activities on its capital adequacyand liquidity.

The Federal Reserve Boards capital planning rule includesa limitation on capital distributions to the extent that actualcapital issuances are less than the amount indicated in thecapital plan submission.



Source of Strength. The Dodd-Frank Act requires bankholding companies to act as a source of strength to theirbank subsidiaries and to commit capital and financialresources to support those subsidiaries. This support maybe required by the Federal Reserve Board at times when wemight otherwise determine not to provide it. Capital loansby a bank holding company to a subsidiary bank aresubordinate in right of payment to deposits and to certainother indebtedness of the subsidiary bank. In addition, if abank holding company commits to a federal bank regulatorthat it will maintain the capital of its bank subsidiary,whether in response to the Federal Reserve Boardsinvoking its source-of-strength authority or in response toother regulatory measures, that commitment will beassumed by the bankruptcy trustee for the holdingcompany and the bank will be entitled to priority paymentin respect of that commitment, ahead of other creditors ofthe bank holding company.

Transactions between Affiliates. Transactions betweenGS Bank USA or its subsidiaries, on the one hand, andGroup Inc. or its other subsidiaries and affiliates, on theother hand, are regulated by the Federal Reserve Board.These regulations generally limit the types and amounts oftransactions (including credit extensions from GS BankUSA or its subsidiaries to Group Inc. or its othersubsidiaries and affiliates) that may take place andgenerally require those transactions to be on market termsor better to GS Bank USA or its subsidiaries. Theseregulations generally do not apply to transactions betweenGS Bank USA and its subsidiaries. The Dodd-Frank Actexpanded the coverage and scope of these regulations,including by applying them to the credit exposure arisingunder derivative transactions, repurchase and reverserepurchase agreements, and securities borrowing andlending transactions.

Total Loss-Absorbing Capacity. In October 2015, theFederal Reserve Board issued a proposed rule that wouldestablish loss-absorbency and related requirements for U.S.G-SIBs. The proposed rule would address U.S.implementation of the Financial Stability Boards total loss-absorbing capacity (TLAC) principles and term sheetdescribed below. The proposed rule would require U.S.G-SIBs, such as Group Inc., to maintain minimum externalTLAC, consisting of Tier 1 capital and eligible senior andsubordinated long-term debt (i.e., debt that is unsecured,has a maturity greater than one year from issuance andsatisfies certain additional criteria), equal to the greater of(i) 16% of risk-weighted assets (RWAs) and (ii) 9.5% oftotal leverage exposure (the denominator of thesupplementary leverage ratio) commencingJanuary 1, 2019. The RWA component would increase to18% of RWAs on January 1, 2022. The proposed rulewould also require a buffer of CET1 in an amount equal tothe sum of (i) the capital conservation buffer (2.5% ofRWAs), (ii) the G-SIB surcharge calculated in accordancewith the Method One calculation and (iii) any applicablecounter-cyclical capital buffer.

In addition, beginning in 2019, U.S. G-SIBs would also berequired to maintain minimum eligible long-term debtequal to the greater of (i) 6% plus the G-SIB surcharge ofRWAs and (ii) 4.5% of total leverage exposure. Theproposed rule would disqualify from eligible long-termdebt, among other instruments, debt securities that permitacceleration for reasons other than insolvency or paymentdefault, as well as structured notes and debt securities notgoverned by U.S. law. The senior long-term debt of U.S.G-SIBs, including Group Inc., typically permits accelerationfor reasons other than insolvency or payment default, andtherefore would not qualify as eligible long-term debt underthe proposed rule.



The proposed rule would also prohibit Group Inc., as a U.S.G-SIB, from (i) guaranteeing liabilities of subsidiaries thatare subject to early termination provisions if the parentcompany of a U.S. G-SIB enters into an insolvency orreceivership proceeding, (ii) incurring liabilities guaranteedby subsidiaries, (iii) issuing short-term debt, or (iv) enteringinto derivatives and certain other financial contracts withexternal counterparties. Additionally, the proposed rulewould cap, at 5% of the value of the U.S. G-SIBs eligibleTLAC, the amount of a U.S. G-SIBs unsecured non-contingent third-party liabilities that are not eligible long-term debt that could rank equally with or junior to eligiblelong-term debt. Finally, the proposed rule would requireU.S. G-SIBs and other large banking entities to deduct fromtheir own Tier 2 capital certain holdings in unsecured debtof other U.S. G-SIBs, as well as holdings of their ownunsecured debt securities. The Federal Reserve Board hasalso indicated that it is considering imposing subsidiaryTLAC requirements on material operating subsidiaries ofU.S. G-SIBs.

In November 2015, the Financial Stability Board issued aset of final principles and a final term sheet on a newminimum standard for TLAC of G-SIBs. The FinancialStability Boards final standard also requires certainmaterial subsidiaries of a G-SIB organized outside of theG-SIBs home country, such as GSI, to maintain amounts ofTLAC to facilitate the transfer of losses from operatingsubsidiaries to the parent company.

Also, in November 2015, the Basel Committee issued aproposal to implement internationally the capitaldeductions for G-SIBs holdings of the TLAC of otherG-SIBs and their own, which will inform how thedeductions are implemented by other national regulators.

In December 2015, the Bank of England published aconsultation paper on its approach for setting a minimumrequirement for own funds and eligible liabilities (MREL)under which certain U.K. financial institutions, includingGSI, would need to maintain equity and liabilities sufficientto credibly bear losses in resolution. MREL is generallyconsistent with the Financial Stability Boards TLACstandard.

The proposed MREL is the sum of a loss absorptionamount and a recapitalization amount. The loss absorptionamount is based on a firms minimum going-concerncapital requirement, which currently consists of Pillar 1 (theminimum capital requirement under the fourth EU CapitalRequirements Directive and EU Capital RequirementsRegulation, collectively known as CRD IV), plus Pillar 2A(an additional amount to cover risks not adequatelycaptured in Pillar 1). The recapitalization amount is basedon a firms recapitalization needs post-resolution and anyadditional requirements to be determined by the Bank ofEngland as necessary to maintain market confidence.

Resolution and Recovery. Each bank holding companywith over $50 billion in assets and each designatedsystemically important financial institution is required bythe Federal Reserve Board and the FDIC to provide anannual plan for its rapid and orderly resolution in the eventof material financial distress or failure (resolution plan).Our resolution plan must, among other things, demonstratethat GS Bank USA is adequately protected from risksarising from our other entities. The regulators joint rulesets specific standards for the resolution plans, includingrequiring a detailed resolution strategy and analyses of thecompanys material entities, organizational structure,interconnections and interdependencies, and managementinformation systems, among other elements. If theregulators jointly determine that an institution has failed tocure identified shortcomings in its resolution plan and thatits resolution plan, after any permitted resubmission, is notcredible, the regulators may jointly impose more stringentcapital, leverage or liquidity requirements or restrictions ongrowth, activities or operations or may jointly order theinstitutions to divest assets or operations in order tofacilitate orderly resolution in the event of failure.

We are also required by the Federal Reserve Board tosubmit, on an annual basis, a global recovery plan thatoutlines the steps that management could take to reducerisk, maintain sufficient liquidity, and conserve capital intimes of prolonged stress.

The FDIC has issued a rule requiring each insureddepository institution with $50 billion or more in assets,such as GS Bank USA, to provide a resolution plan. Similarto our resolution plan for Group Inc., our resolution planfor GS Bank USA must, among other things, demonstratethat it is adequately protected from risks arising from ourother entities.



The EU Bank Recovery and Resolution Directive (theBRRD) required EU member states to grant, byJanuary 1, 2016, bail-in powers to EU resolutionauthorities to recapitalize a failing entity by writing downits unsecured debt or converting its unsecured debt intoequity. Financial institutions in the EU (including GSI) mustprovide that new contracts entered into afterJanuary 1, 2016 enable such actions and also amend pre-existing contracts governed by non-EU law to enable suchactions, when the financial institutions could incurliabilities under such pre-existing contracts afterJanuary 1, 2016.

Separately, under the BRRD, financial contracts notgoverned by EU law are required to be amended so that theresolution authorities can impose a temporary stay oftermination in resolution. These requirements must beimplemented over 2016 and 2017, with the timingdepending on the category of the counterparty of thefinancial institution. The BRRD also subjects investmentfirms to MREL so that they can be resolved without causingfinancial instability and without recourse to public funds inthe event of a failure. In July 2015, the European BankingAuthority published final draft Regulatory TechnicalStandards on MREL, which specify the common criteriaunder the BRRD. The Bank of Englands proposal onMREL is described above under Total Loss-AbsorbingCapacity.

Insolvency of an Insured Depository Institution or aBank Holding Company. Under the Federal DepositInsurance Act of 1950, if the FDIC is appointed asconservator or receiver for an insured depository institutionsuch as GS Bank USA, upon its insolvency or in certainother events, the FDIC has broad powers, including thepower:

To transfer any of the depository institutions assets andliabilities to a new obligor, including a newly formedbridge bank, without the approval of the depositoryinstitutions creditors;

To enforce the depository institutions contracts pursuantto their terms without regard to any provisions triggeredby the appointment of the FDIC in that capacity; or

To repudiate or disaffirm any contract or lease to whichthe depository institution is a party, the performance ofwhich is determined by the FDIC to be burdensome andthe disaffirmance or repudiation of which is determinedby the FDIC to promote the orderly administration of thedepository institution.

In addition, under federal law, the claims of holders ofdomestic deposit liabilities and certain claims foradministrative expenses against an insured depositoryinstitution would be afforded a priority over other generalunsecured claims, including deposits at non-U.S. branchesand claims of debt holders of the institution, in theliquidation or other resolution of such an institution byany receiver. As a result, whether or not the FDIC eversought to repudiate any debt obligations of GS Bank USA,the debt holders (other than depositors) would be treateddifferently from, and could receive, if anything,substantially less than, the depositors of GS Bank USA.

The Dodd-Frank Act created a new resolution regime(known as orderly liquidation authority) for bankholding companies and their affiliates that are systemicallyimportant and certain non-bank financial companies.Under the orderly liquidation authority, the FDIC may beappointed as receiver for the systemically importantinstitution and its failed non-bank subsidiaries if, upon therecommendation of applicable regulators, the Secretary ofthe Treasury determines, among other things, that theinstitution is in default or in danger of default, that theinstitutions failure would have serious adverse effects onthe U.S. financial system and that resolution under theorderly liquidation authority would avoid or mitigate thoseeffects.

If the FDIC is appointed as receiver under the orderlyliquidation authority, then the powers of the receiver, andthe rights and obligations of creditors and other partieswho have dealt with the institution, would be determinedunder the orderly liquidation authority, and not under thebankruptcy or insolvency law that would otherwise apply.The powers of the receiver under the orderly liquidationauthority were generally based on the powers of the FDICas receiver for depository institutions under the FederalDeposit Insurance Act. Substantial differences in the rightsof creditors exist between the orderly liquidation authorityand the U.S. Bankruptcy Code, including the right of theFDIC under the orderly liquidation authority to disregardthe strict priority of creditor claims in some circumstances,the use of an administrative claims procedure to determinecreditors claims (as opposed to the judicial procedureutilized in bankruptcy proceedings), and the right of theFDIC to transfer claims to a bridge entity. In addition,the orderly liquidation authority limits the ability ofcreditors to enforce certain contractual cross-defaultsagainst affiliates of the institution in receivership.



The orderly liquidation authority provisions of the Dodd-Frank Act became effective upon enactment. The FDIC hascompleted several rulemakings and taken other actionsunder the orderly liquidation authority, including theissuance of a notice describing some elements of its singlepoint of entry or SPOE strategy pursuant to the orderlyliquidation authority provisions of the Dodd-Frank Act.Under this strategy, the FDIC would, among other things,resolve a failed financial holding company by transferringits assets to a bridge holding company.

In November 2015, we, along with a number of othermajor global banking organizations, adhered to an updatedversion of the International Swaps and DerivativesAssociation Resolution Stay Protocol (the ISDA Protocol)that was developed in coordination with the FinancialStability Board. The ISDA Protocol imposes a stay oncertain cross-default and early termination rights withinstandard ISDA derivatives contracts and securitiesfinancing transactions between adhering parties in the eventthat one of them is subject to resolution in its homejurisdiction, including a resolution under the orderlyliquidation authority in the United States. The initialversion, which addressed ISDA derivatives contracts, tookeffect in January 2015, and the updated version, which wasrevised to also cover securities financing transactions, tookeffect in January 2016. The ISDA Protocol is expected to beadopted more broadly in the future, following the adoptionof regulations by banking regulators, and expanded toinclude instances where a U.S. financial holding companybecomes subject to proceedings under the U.S. bankruptcycode.

FDIC Insurance. GS Bank USA accepts deposits, and thosedeposits have the benefit of FDIC insurance up to theapplicable limits. The FDICs Deposit Insurance Fund isfunded by assessments on insured depository institutions,such as GS Bank USA. The amounts of these assessmentsfor larger depository institutions (generally those that have$10 billion in assets or more), such as GS Bank USA, arecurrently based on the average total consolidated assets lessthe average tangible equity of the insured depositoryinstitution during the assessment period, the supervisoryratings of the insured depository institution and specifiedforward-looking financial measures used to calculate theassessment rate. The assessment rate is subject toadjustment by the FDIC.

In October 2015, the FDIC issued a proposed rule thatwould increase the reserve ratio for the Deposit InsuranceFund to 1.35% of total insured deposits. The proposed rulewould impose a surcharge on the assessments of largerdepository institutions, beginning the quarter after thereserve ratio first reaches or exceeds 1.15% and continuingthrough the earlier of the quarter that the reserve ratio firstreaches or exceeds 1.35% and December 31, 2018. Underthe proposed rule, if the reserve ratio does not reach 1.35%by December 31, 2018, the FDIC would impose a shortfallassessment on larger depository institutions, including GSBank USA.

Prompt Corrective Action. The U.S. Federal DepositInsurance Corporation Improvement Act of 1991(FDICIA), among other things, requires the federal bankregulatory agencies to take prompt corrective action inrespect of depository institutions that do not meet specifiedcapital requirements. FDICIA establishes five capitalcategories for FDIC-insured banks: well-capitalized,adequately capitalized, undercapitalized, significantlyundercapitalized and critically undercapitalized.

An institution may be downgraded to, or deemed to be in, acapital category that is lower than is indicated by its capitalratios if it is determined to be in an unsafe or unsoundcondition or if it receives an unsatisfactory examinationrating with respect to certain matters. FDICIA imposesprogressively more restrictive constraints on operations,management and capital distributions, as the capitalcategory of an institution declines. Failure to meet thecapital requirements could also require a depositoryinstitution to raise capital. Ultimately, criticallyundercapitalized institutions are subject to the appointmentof a receiver or conservator, as described under Resolutionand Recovery, and Insolvency Insolvency of an InsuredDepository Institution or a Bank Holding Companyabove.

The prompt corrective action regulations apply only todepository institutions and not to bank holding companiessuch as Group Inc. However, the Federal Reserve Board isauthorized to take appropriate action at the holdingcompany level, based upon the undercapitalized status ofthe holding companys depository institution subsidiaries.In certain instances relating to an undercapitalizeddepository institution subsidiary, the bank holdingcompany would be required to guarantee the performanceof the undercapitalized subsidiarys capital restoration planand might be liable for civil money damages for failure tofulfill its commitments on that guarantee. Furthermore, inthe event of the bankruptcy of the holding company, theguarantee would take priority over the holding companysgeneral unsecured creditors, as described under Source ofStrength above.



Activities. The Dodd-Frank Act and the BHC Actgenerally restrict bank holding companies from engaging inbusiness activities other than the business of banking andcertain closely related activities.

Volcker Rule. The provisions of the Dodd-Frank Actreferred to as the Volcker Rule became effective inJuly 2015. The Volcker Rule prohibits proprietarytrading, but permits activities such as underwriting,market making and risk-mitigation hedging, requires anextensive compliance program and includes additionalreporting and record keeping requirements. The reportingrequirements include calculating daily quantitative metricson covered trading activities (as defined in the rule) andproviding these metrics to regulators on a monthly basis.

In addition, the Volcker Rule limits the sponsorship of, andinvestment in, covered funds (as defined in the rule) bybanking entities, including Group Inc. and its subsidiaries.It also limits certain types of transactions between us andour sponsored funds, similar to the limitations ontransactions between depository institutions and theiraffiliates. Covered funds include our private equity funds,certain of our credit and real estate funds, our hedge fundsand certain other investment structures. The limitation oninvestments in covered funds requires us to reduce ourinvestment in each such fund to 3% or less of the funds netasset value, and to reduce our aggregate investment in allsuch funds to 3% or less of our Tier 1 capital.

In December 2014, the Federal Reserve Board extended theconformance period through July 2016 for investments in,and relationships with, covered funds that were in placeprior to December 31, 2013, and indicated that it intends tofurther extend the conformance period through July 2017.

See Managements Discussion and Analysis of FinancialCondition and Results of Operations RegulatoryDevelopments Volcker Rule in Part II, Item 7 of the2015 Form 10-K for information about our investments incovered funds.

Other Restrictions. Financial holding companies generallycan engage in a broader range of financial and relatedactivities than are otherwise permissible for bank holdingcompanies as long as they continue to meet the eligibilityrequirements for financial holding companies. The broaderrange of permissible activities for financial holdingcompanies includes underwriting, dealing and makingmarkets in securities and making investments in non-financial companies. In addition, financial holdingcompanies are permitted under the GLB Act to engage incertain commodities activities in the United States that mayotherwise be impermissible for bank holding companies, solong as the assets held pursuant to these activities do notequal 5% or more of their consolidated assets.

The Federal Reserve Board, however, has the authority tolimit a financial holding companys ability to conductactivities that would otherwise be permissible, and willlikely do so if the financial holding company does notsatisfactorily meet certain requirements of the FederalReserve Board. For example, if a financial holding companyor any of its U.S. depository institution subsidiaries ceasesto maintain its status as well-capitalized or well-managed,the Federal Reserve Board may impose corrective capitaland/or managerial requirements, as well as additionallimitations or conditions. If the deficiencies persist, thefinancial holding company may be required to divest itsU.S. depository institution subsidiaries or to cease engagingin activities other than the business of banking and certainclosely related activities.

In addition, we are required to obtain prior Federal ReserveBoard approval before engaging in certain banking andother financial activities both within and outside the UnitedStates.

Single-counterparty credit limits and early remediationrequirements have been proposed but are still underconsideration by the Federal Reserve Board. The proposedsingle-counterparty credit limits impose more stringentrequirements for credit exposure among major financialinstitutions, which (together with other provisionsincorporated into the Basel III capital rules) may affect ourability to transact or hedge with other financial institutions.The proposed early remediation rules are modeled on theprompt corrective action regime, described under U.S.Deposit Insurance and Prompt Corrective Action, but aredesigned to require action to begin in earlier stages of acompanys financial distress, based on a range of triggers,including capital and leverage, stress test results, liquidityand risk management.



If any insured depository institution subsidiary of afinancial holding company fails to maintain at least asatisfactory rating under the Community ReinvestmentAct, the financial holding company would be subject tosimilar restrictions on activities.

In addition, New York State banking law imposes lendinglimits (which take into account credit exposure fromderivative transactions) and other requirements that couldimpact the manner and scope of GS Bank USAs activities.

During the past several years, the U.S. federal bankregulatory agencies have raised concerns over originationand other practices in leveraged lending markets. Theagencies have issued guidance that focuses on transactionstructures and risk management frameworks and outlineshigh-level principles for safe-and-sound leveraged lending,including underwriting standards, valuation and stresstesting.

Broker-Dealer and Securities RegulationOur broker-dealer subsidiaries are subject to regulationsthat cover all aspects of the securities business, includingsales methods, trade practices, use and safekeeping ofclients funds and securities, capital structure,recordkeeping, the financing of clients purchases, and theconduct of directors, officers and employees. In the UnitedStates, the SEC is the federal agency responsible for theadministration of the federal securities laws. GS&Co. isregistered as a broker-dealer, a municipal advisor and aninvestment adviser with the SEC and as a broker-dealer inall 50 states and the District of Columbia. Self-regulatoryorganizations, such as FINRA and the NYSE, adopt rulesthat apply to, and examine, broker-dealers such as GS&Co.

In addition, state securities and other regulators also haveregulatory or oversight authority over GS&Co. Similarly,our businesses are also subject to regulation by various non-U.S. governmental and regulatory bodies and self-regulatory authorities in virtually all countries where wehave offices, as described further below, as well as underOther Regulation. GSEC is a registered U.S. broker-dealer and is regulated by the SEC, the NYSE and FINRA.For a description of net capital requirements applicable toGS&Co. and GSEC, see Note 20 to the consolidatedfinancial statements in Part II, Item 8 of the 2015Form 10-K.

In Europe, we provide broker-dealer services that aresubject to oversight by national regulators as well as EUregulators. These services are regulated in accordance withnational laws, many of which implement EU directives, andincreasingly by directly applicable EU regulations. Thesenational and EU laws require, among other things,compliance with certain capital adequacy standards,customer protection requirements and market conduct andtrade reporting rules.

We provide broker-dealer services in and from the UnitedKingdom under the regulation of the PRA and the FCA.GSI, our regulated U.K. broker-dealer subsidiary, is subjectto capital requirements imposed by the PRA. GSI also hasits own capital planning and stress testing process, whichincorporates internally designed stress tests and thoserequired under the PRAs Internal Capital AdequacyAssessment Process. See Managements Discussion andAnalysis of Financial Condition and Results ofOperations Equity Capital Management and RegulatoryCapital Subsidiary Capital Requirements in Part II,Item 7 of the 2015 Form 10-K for information about GSIscapital ratios.

Goldman Sachs Japan Co., Ltd. (GSJCL), our regulatedJapanese broker-dealer, is subject to capital requirementsimposed by Japans Financial Services Agency. GSJCL isalso regulated by the Tokyo Stock Exchange, the OsakaExchange, the Tokyo Financial Exchange, the JapanSecurities Dealers Association, the Tokyo CommodityExchange, Securities and Exchange SurveillanceCommission, Bank of Japan, the Ministry of Finance andthe Ministry of Economy, Trade and Industry, amongothers.

Also, the Securities and Futures Commission in HongKong, the Monetary Authority of Singapore, the ChinaSecurities Regulatory Commission, the Korean FinancialSupervisory Service, the Reserve Bank of India, theSecurities and Exchange Board of India, the AustralianSecurities and Investments Commission and the AustralianSecurities Exchange, among others, regulate various of oursubsidiaries and also have capital standards and otherrequirements comparable to the rules of the SEC. Variousof our other subsidiaries are regulated by the banking andregulatory authorities in jurisdictions in which we operate,including, among others, Brazil and Dubai.

Our exchange-based market-making activities are subjectto extensive regulation by a number of securities exchanges.As a market maker on exchanges, we are required tomaintain orderly markets in the securities to which we areassigned.



The Dodd-Frank Act will result in additional regulation bythe SEC, the CFTC and other regulators of our broker-dealer and regulated subsidiaries in a number of respects.The legislation calls for the imposition of expandedstandards of care by market participants in dealing withclients and customers, including by providing the SEC withauthority to adopt rules establishing fiduciary duties forbroker-dealers and directing the SEC to examine andimprove sales practices and disclosure by broker-dealersand investment advisers. In addition, the U.S. Departmentof Labor has issued proposed rules defining thecircumstances in which a person would be treated as afiduciary under the Employee Retirement Income SecurityAct of 1974 by reason of providing investment advice toretirement plans and individual retirement accounts, as wellas proposed exemptions.

Our broker-dealer and other subsidiaries are also subject torules adopted by federal agencies pursuant to the Dodd-Frank Act that require any person who organizes orinitiates an asset-backed security transaction to retain aportion (generally, at least five percent) of any credit riskthat the person conveys to a third party. Securitizationswould also be affected by rules proposed by the SEC toimplement the Dodd-Frank Acts prohibition againstsecuritization participants engaging in any transaction thatwould involve or result in any material conflict of interestwith an investor in a securitization transaction. Theproposed rules would exempt bona fide market-makingactivities and risk-mitigating hedging activities inconnection with securitization activities from the generalprohibition.

The SEC, FINRA and regulators in various non-U.S.jurisdictions have imposed both conduct-based anddisclosure-based requirements with respect to researchreports and research analysts and may impose additionalregulations.

Swaps, Derivatives and Commodities RegulationThe commodity futures, commodity options and swapsindustry in the United States is subject to regulation underthe U.S. Commodity Exchange Act. The CFTC is thefederal agency charged with the administration of the CEA.In addition, the SEC is the federal agency charged with theregulation of security-based swaps. Several of oursubsidiaries, including GS&Co. and GSEC, are registeredwith the CFTC and act as futures commission merchants,commodity pool operators, commodity trading advisors or(as described below) swap dealers, and are subject to CFTCregulations. The rules and regulations of various self-regulatory organizations, such as the Chicago Board ofTrade and the Chicago Mercantile Exchange, other futuresexchanges and the National Futures Association, alsogovern the commodity futures, commodity options andswaps activities of these entities. In addition, GoldmanSachs Financial Markets, L.P. is registered with the SEC asan OTC derivatives dealer and conducts certain OTCderivatives activities.

The Dodd-Frank Act provides for significantly increasedregulation of, and restrictions on, derivative markets andtransactions. In particular, the Dodd-Frank Act imposes thefollowing requirements relating to swaps and security-based swaps:

Real-time public and regulatory reporting of tradeinformation for swaps and security-based swaps andlarge trader reporting for swaps;

Registration of swap dealers and major swap participantswith the CFTC and of security-based swap dealers andmajor security-based swap participants with the SEC;

Position limits, aggregated generally across commonlycontrolled accounts and commonly controlled affiliates,that cap exposure to derivatives on certain physicalcommodities;

Mandated clearing through central counterparties andexecution through regulated exchanges or electronicfacilities for certain swaps and security-based swaps;

New business conduct standards and other requirementsfor swap dealers, major swap participants, security-basedswap dealers and major security-based swap participants,covering their relationships with counterparties, internaloversight and compliance structures, conflict of interestrules, internal information barriers, general and trade-specific record-keeping and risk management;



Margin requirements for trades that are not clearedthrough a central counterparty; and

Entity-level capital requirements for swap dealers, majorswap participants, security-based swap dealers, andmajor security-based swap participants.

The terms swaps and security-based swaps aregenerally defined broadly for purposes of theserequirements, and can include a wide variety of derivativeinstruments in addition to those conventionally calledswaps. The definition includes certain forward contracts,options, certain loan participations and guarantees ofswaps, subject to certain exceptions, and relates to a widevariety of underlying assets or obligations, includingcurrencies, commodities, interest or other monetary rates,yields, indices, securities, credit events, loans and otherfinancial obligations.

The CFTC is responsible for issuing rules relating to swaps,swap dealers and major swap participants, and the SEC isresponsible for issuing rules relating to security-basedswaps, security-based swap dealers and major security-based swap participants. The U.S. federal bank regulatoryagencies (acting jointly) adopted final rules inOctober 2015 and the CFTC adopted final margin rules foruncleared swaps in December 2015 that will phase invariation margin requirements from September 1, 2016through March 1, 2017 and initial margin requirementsfrom September 1, 2016 through September 1, 2020,depending on the level of swaps and foreign exchangeforward transaction activity of the swap dealer and therelevant counterparty. The final rules of the U.S. federalbank regulatory agencies would generally apply to inter-affiliate transactions, with limited relief available from theinitial margin requirements for affiliates that haveregistered with the CFTC as swap dealers. Under the CFTCfinal rules, inter-affiliate transactions would be exemptfrom initial margin requirements with certain exceptions,but variation margin requirements would still apply. Weexpect the SEC to adopt margin regulations as well in 2016.

The CFTC has not yet finalized its capital regulations forswap dealers. However, many of the requirements,including registration of swap dealers, mandatory clearingand execution of certain swaps, business conduct standardsand real-time public trade reporting, have taken effectalready under CFTC rules, and the SEC and the CFTC havefinalized the definitions of a number of key terms. Finally,the CFTC has begun to decide which swaps must be clearedthrough central counterparties and executed on swapexecution facilities or exchanges. In particular, certaininterest rate swaps and credit default swaps are now subjectto these clearing and trade-execution requirements. TheCFTC is expected to continue to make such determinationsduring 2016.

The SEC has adopted rules relating to trade reporting andreal-time reporting requirements for security-based swapdealers and major security-based swap participants. TheSEC has also adopted final rules relating to the registrationof security-based swap dealers, but such registration is notcurrently required. The SEC has proposed, but not yetfinalized, rules to impose margin, capital, segregation andbusiness conduct requirements for security-based swapdealers and major security-based swap participants. Th