The Quarterly
GS 2012 10-K

Goldman Sachs Group Inc (GS) SEC Annual Report (10-K) for 2013

GS 2014 10-K
GS 2012 10-K GS 2014 10-K
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

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

New York, N.Y.

10282
(Address of principal executive offices) (Zip Code)

(212) 902-1000

(Registrant's 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 Exchange

Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate

Non-Cumulative Preferred Stock, Series A

New York Stock Exchange

Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.20%

Non-Cumulative Preferred Stock, Series B

New York Stock Exchange

Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate

Non-Cumulative Preferred Stock, Series C

New York Stock Exchange

Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate

Non-Cumulative Preferred Stock, Series D

New York Stock Exchange

Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate

Non-Cumulative Preferred Stock, Series I

New York Stock Exchange

Depositary 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 Exchange

See 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 x 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 x

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 Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x 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 be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Annual Report on Form 10-K or any amendment to the Annual Report on Form 10-K.  x

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

Large accelerated filer  x

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  x

As of June 30, 2013, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was approximately $66.8 billion.

As of February 14, 2014, there were 452,752,440 shares of the registrant's common stock outstanding.

Documents incorporated by reference : Portions of The Goldman Sachs Group, Inc.'s Proxy Statement for its 2014 Annual Meeting of Shareholders are incorporated by reference in the Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

Table of Contents

THE GOLDMAN SACHS GROUP, INC.

ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013

INDEX

Form 10-K Item Number

Page No.

PART I

1

Item 1

Business

1

Introduction

1

Our Business Segments and Segment Operating Results

1

Investment Banking

2

Institutional Client Services

3

Investing & Lending

4

Investment Management

5

Business Continuity and Information Security

6

Employees

6

Competition

6

Regulation

7

Available Information

22

Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995

23

Item 1A

Risk Factors

24

Item 1B

Unresolved Staff Comments

40

Item 2

Properties

40

Item 3

Legal Proceedings

40

Item 4

Mine Safety Disclosures

40

Executive Officers of The Goldman Sachs Group, Inc.

41

PART II

42

Item 5

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

42

Item 6

Selected Financial Data

42

Item 7

Management's Discussion and Analysis of Financial Condition and Results of Operations

43

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

119

Item 8

Financial Statements and Supplementary Data

120

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

239

Item 9A

Controls and Procedures

239

Item 9B

Other Information

239

PART III

239

Item 10

Directors, Executive Officers and Corporate Governance

239

Item 11

Executive Compensation

239

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters

240

Item 13

Certain Relationships and Related Transactions, and Director Independence

240

Item 14

Principal Accountant Fees and Services

240

PART IV

241

Item 15

Exhibits and Financial Statement Schedules

241

SIGNATURES

II-1
Table of Contents

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 a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals.

When we use the terms "Goldman Sachs," "the firm," "we," "us" and "our," we mean The Goldman Sachs Group, Inc. (Group Inc.), a Delaware corporation, and its consolidated subsidiaries.

References to "the 2013 Form 10-K" are to our Annual Report on Form 10-K for the year ended December 31, 2013. All references to 2013, 2012 and 2011 refer to our years ended, or the dates, as the context requires, December 31, 2013, December 31, 2012 and December 31, 2011, respectively.

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

As of December 2013, we had offices in over 30 countries and 50% of our total staff was based outside the Americas (which includes the countries in North and South America). Our clients are located worldwide, and we are an active participant in financial markets around the world. In 2013, we generated 42% of our net revenues outside the Americas. For more information on our geographic results, see Note 25 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K.

Our Business Segments and Segment Operating Results

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

Goldman Sachs 2013 Form 10-K 1
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

The table below presents our segment operating results.

Year Ended December  1 % of 2013
in millions 2013 2012 2011
Net
Revenues

Investment Banking

Net revenues

$  6,004 $  4,926 $  4,355 18

Operating expenses

3,475 3,330 2,995

Pre-tax earnings

$  2,529 $  1,596 $  1,360

Institutional Client Services

Net revenues

$15,721 $18,124 $17,280 46

Operating expenses

11,782 12,480 12,837

Pre-tax earnings

$  3,939 $  5,644 $  4,443

Investing & Lending

Net revenues

$  7,018 $  5,891 $  2,142 20

Operating expenses

2,684 2,666 2,673

Pre-tax earnings/(loss)

$  4,334 $  3,225 $    (531

Investment Management

Net revenues

$  5,463 $  5,222 $  5,034 16

Operating expenses

4,354 4,294 4,020

Pre-tax earnings

$  1,109 $     928 $  1,014

Total

Net revenues

$34,206 $34,163 $28,811

Operating expenses  2

22,469 22,956 22,642

Pre-tax earnings

$11,737 $11,207 $  6,169

1.

Financial information concerning our business segments for 2013, 2012 and 2011 is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Financial Statements and Supplementary Data," which are in Part II, Items 7 and 8, respectively, of the 2013 Form 10-K. See Note 25 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for a summary of our total net revenues, pre-tax earnings and net earnings by geographic region.

2.

Includes the following expenses that have not been allocated to our segments: (i) charitable contributions of $155 million for 2013, $169 million for 2012 and $103 million for 2011; and (ii) real estate-related exit costs of $19 million for 2013, $17 million for 2012 and $14 million for 2011.

Investment Banking

Investment Banking serves corporate and government clients around the world. We provide financial advisory services and help companies raise capital to strengthen and grow their businesses. We seek to develop and maintain long-term relationships with a diverse global group of institutional clients, including governments, states and municipalities. Our goal is to deliver to our clients the entire resources of the firm in a seamless fashion, with investment banking serving as the main initial point of contact with Goldman Sachs.

Financial Advisory. Financial Advisory includes strategic advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, risk management, restructurings and spin-offs. In particular, we help clients execute large, complex transactions for which we provide multiple services, including acquisition financing and cross-border structuring expertise. Financial Advisory also includes revenues from derivative transactions directly related to these client advisory assignments.

We also assist our clients in managing their asset and liability exposures and their capital. In addition, we may provide lending commitments and bank loan and bridge loan facilities in connection with our advisory assignments.

Underwriting. The other core activity of Investment Banking is helping companies raise capital to fund their businesses. As a financial intermediary, our job is to match the capital of our investing clients - who aim to grow the savings of millions of people - with the needs of our corporate and government clients - who need financing to generate growth, create jobs and deliver products and services. Our underwriting activities include public offerings and private placements, including domestic and cross-border transactions, of a wide range of securities and other financial instruments. Underwriting also includes revenues from derivative transactions entered into with corporate and government clients in connection with our underwriting activities.

2 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Equity Underwriting. We underwrite common and preferred stock and convertible and exchangeable securities. We regularly receive mandates for large, complex transactions and have held a leading position in worldwide public common stock offerings and worldwide initial public offerings for many years.

Debt Underwriting. We underwrite and originate various types of debt instruments, including investment-grade and high-yield debt, bank loans and bridge loans, and emerging- and growth-market debt, which may be issued by, among others, corporate, sovereign, municipal and agency issuers. In addition, we underwrite and originate structured securities, which include mortgage-related securities and other asset-backed securities.

Institutional Client Services

Institutional Client Services serves our clients who come to the firm to buy and sell financial products, raise funding and manage risk. We do this by acting as a market maker and offering market expertise on a global basis. Institutional Client Services makes markets and facilitates client transactions in fixed income, equity, currency and commodity products. In addition, we make markets in and clear client transactions on major stock, options and futures exchanges worldwide. Market makers provide liquidity and play a critical role in price discovery, which contributes to the overall efficiency of the capital markets. Our willingness to make markets, commit capital and take risk in a broad range of products is crucial to our client relationships.

Our clients are primarily institutions that are professional market participants, including investment entities whose ultimate customers include individual investors investing for their retirement, buying insurance or putting aside surplus cash in a deposit account.

Through our global sales force, we maintain relationships with our clients, receiving orders and distributing investment research, trading ideas, market information and analysis. As a market maker, we provide prices to clients globally across thousands of products in all major asset classes and markets. At times we take the other side of transactions ourselves if a buyer or seller is not readily available and at other times we connect our clients to other parties who want to transact. Much of this connectivity between the firm and its clients is maintained on technology platforms and operates globally wherever and whenever markets are open for trading.

Institutional Client Services and our other businesses are supported by our Global Investment Research division, which, as of December 2013, provided fundamental research on more than 3,700 companies worldwide and more than 40 national economies, as well as on industries, currencies and commodities.

Institutional Client Services generates revenues in four ways:

Ÿ

In large, highly liquid markets (such as markets for U.S. Treasury bills, large capitalization S&P 500 stocks or certain mortgage pass-through securities), we execute a high volume of transactions for our clients for modest spreads and fees.

Ÿ

In less liquid markets (such as mid-cap corporate bonds, growth market currencies or certain non-agency mortgage-backed securities), we execute transactions for our clients for spreads and fees that are generally somewhat larger.

Ÿ

We also structure and execute transactions involving customized or tailor-made products that address our clients' risk exposures, investment objectives or other complex needs (such as a jet fuel hedge for an airline).

Ÿ

We provide financing to our clients for their securities trading activities, as well as securities lending and other prime brokerage services.

Institutional Client Services activities are organized by asset class and include both "cash" and "derivative" instruments. "Cash" refers to trading the underlying instrument (such as a stock, bond or barrel of oil). "Derivative" refers to instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors (such as an option, which is the right or obligation to buy or sell a certain bond or stock index on a specified date in the future at a certain price, or an interest rate swap, which is the agreement to convert a fixed rate of interest into a floating rate or vice versa).

Goldman Sachs 2013 Form 10-K 3
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

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

Ÿ

Interest Rate Products. Government bonds, money market instruments such as commercial paper, treasury bills, repurchase agreements and other highly liquid securities and instruments, as well as interest rate swaps, options and other derivatives.

Ÿ

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

Ÿ

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

Ÿ

Currencies. Most currencies, including growth-market currencies.

Ÿ

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, commissions and fees, and securities services.

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

We also structure and make markets in derivatives on indices, industry groups, financial measures and individual company stocks. We develop strategies and provide information about portfolio hedging and restructuring and asset allocation transactions for our clients. We also work with our clients to create specially tailored instruments to enable sophisticated investors to establish or liquidate investment positions or undertake hedging strategies. We are one of the leading participants in the trading and development of equity derivative instruments.

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

Commissions and Fees . We generate commissions and fees from executing and clearing institutional client transactions on major stock, options and futures exchanges worldwide. We provide our clients with access to a broad spectrum of equity execution services, including electronic "low-touch" access and more traditional "high-touch" execution. While the majority of our equity trading activity is "low-touch," the majority of our net revenues continue to be derived from our "high-touch" activity. We expect both types of activity to remain important.

Securities Services. Includes financing, securities lending and other prime brokerage services.

Ÿ

Financing Services. We provide financing to our clients for their securities trading activities through margin loans that are collateralized by securities, cash or other acceptable collateral. We earn a spread equal to the difference between the amount we pay for funds and the amount we receive from our client.

Ÿ

Securities Lending Services. We provide services that principally involve borrowing and lending securities to cover institutional clients' short sales and borrowing securities to cover our short sales and otherwise to make deliveries into the market. In addition, we are an active participant in broker-to-broker securities lending and third-party agency lending activities.

Ÿ

Other Prime Brokerage Services. We earn fees by providing clearing, settlement and custody services globally. In addition, we provide our hedge fund and other clients with a technology platform and reporting which enables them to monitor their security portfolios and manage risk exposures.

Investing & Lending

Our investing and lending activities, which are typically longer-term, include the firm's investing and relationship lending activities across various asset classes, primarily debt securities and loans, public and private equity securities, and real estate. These activities include investing directly in publicly and privately traded securities and in loans, and also through certain investment funds that we manage. We manage a diversified global portfolio of investments in equity securities and debt and other investments in privately negotiated transactions, leveraged buyouts, acquisitions and investments in funds managed by external parties. We also provide financing to our clients.

4 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

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

Debt Securities and Loans. We make corporate, real estate and infrastructure debt investments. In addition, we provide credit to corporate clients through loan facilities and to high-net-worth individuals primarily through secured loans.

Other. Our other investments primarily include consolidated investments, for which we have an exit strategy and which are engaged in activities that are not closely related to our principal businesses. We also invest directly in distressed assets, currencies, commodities and other assets.

Investment Management

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

We manage client assets across a broad range of asset classes and investment strategies, including equity, fixed income and alternative investments. Alternative investments primarily include hedge funds, credit funds, private equity, real estate, currencies, commodities, and asset allocation strategies. Our investment offerings include those managed on a fiduciary basis by our portfolio managers as well as strategies managed by third-party managers. We offer our investments in a variety of structures, including separately managed accounts, mutual funds, private partnerships, and other commingled vehicles.

We also provide customized investment advisory solutions designed to address our clients' investment needs. These solutions begin with identifying clients' objectives and continue through portfolio construction, ongoing asset allocation and risk management and investment realization. We draw from a variety of third-party managers as well as our proprietary offerings to implement solutions for clients.

We supplement our investment advisory solutions for high-net-worth clients with wealth advisory services that include income and liability management, trust and estate planning, philanthropic giving and tax planning. We also use the firm's global securities and derivatives market-making capabilities to address clients' specific investment needs.

Management and Other Fees. The majority of revenues in management and other fees is comprised of asset-based fees on client assets. The fees that we charge vary by asset class and are affected by investment performance as well as asset inflows and redemptions. Other fees we receive include financial counseling fees generated through our wealth advisory services and fees related to the administration of real estate assets.

Assets under supervision include assets under management and other client assets. Assets under management include client assets where we earn a fee for managing assets on a discretionary basis. This includes net assets in our mutual funds, hedge funds, credit funds and private equity funds (including real estate funds), and separately managed accounts for institutional and individual investors. Other client assets include client assets invested with third-party managers, bank deposits and advisory relationships where we earn a fee for advisory and other services, but do not have investment discretion. Assets under supervision do not include the self-directed brokerage assets of our clients. Long-term assets under supervision represent assets under supervision excluding liquidity products. Liquidity products represent money markets and bank deposit assets.

Incentive Fees. In certain circumstances, we are also entitled to receive incentive fees based on a percentage of a fund's or a separately managed account's return, or when the return exceeds a specified benchmark or other performance targets. Such fees include overrides, which consist of the increased share of the income and gains derived primarily from our private equity funds when the return on a fund's investments over the life of the fund exceeds certain threshold returns. Incentive fees are recognized only when all material contingencies are resolved.

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

Goldman Sachs 2013 Form 10-K 5
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Business Continuity and Information Security

Business continuity and information security, including cyber security, are high priorities for Goldman Sachs. Our Business Continuity Program has been developed to provide reasonable assurance of business continuity in the event of disruptions at the firm's critical facilities and to comply with regulatory requirements, including those of FINRA. Because we are a bank holding company, our Business Continuity Program is also subject to review by the Federal Reserve Board. The key elements of the program are crisis planning and management, people recovery, business recovery, systems and data recovery, and process improvement. In the area of information security, we have developed and implemented a framework of principles, policies and technology to protect the information provided to us by our clients and that of the firm from cyber attacks and other misappropriation, corruption or loss. Safeguards are applied to maintain the confidentiality, integrity and availability of information.

Employees

Management believes that a major strength and principal reason for the success of Goldman Sachs is the quality and dedication of our people and the shared sense of being part of a team. We strive to maintain a work environment that fosters professionalism, excellence, diversity, cooperation among our employees worldwide and high standards of business ethics.

Instilling the Goldman Sachs culture in all employees is a continuous process, in which training plays an important part. All employees are offered the opportunity to participate in education and periodic seminars that we sponsor at various locations throughout the world. Another important part of instilling the Goldman Sachs culture is our employee review process. Employees are reviewed by supervisors, co-workers and employees 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, compliance and diversity. As of December 2013, we had 32,900 total staff.

Competition

The financial services industry - and all of our businesses - are intensely competitive, and we expect them to remain so. Our competitors are other entities that provide investment banking, securities and investment management services, as well as those entities that make investments in securities, commodities, derivatives, real estate, loans and other financial assets. These entities include brokers and dealers, investment banking firms, commercial banks, insurance companies, investment advisers, mutual funds, hedge funds, private equity funds and merchant banks. We compete with some entities globally and with others on a regional, product or niche basis. Our competition is based on a number of factors, including transaction execution, products and services, innovation, reputation and price.

Over time, there has been substantial consolidation and convergence among companies in the financial services industry and, in particular, the credit crisis caused numerous mergers and asset acquisitions among industry participants. Efforts by our competitors to gain market share have resulted in pricing pressure in our investment banking and client execution businesses and could result in pricing pressure in other of our businesses. Moreover, we have faced, and expect to continue to face, pressure to retain market share by committing capital to businesses or transactions on terms that offer returns that may not be commensurate with their risks. In particular, corporate clients seek such commitments (such as agreements to participate in their commercial paper backstop or other loan facilities) from financial services firms in connection with investment banking and other assignments.

Consolidation and convergence have significantly increased the capital base and geographic reach of some of our competitors, and have also hastened the globalization of the securities and other financial services markets. As a result, we have had to commit capital to support our international operations and to execute large global transactions. To take advantage of some of our most significant opportunities, we will have to compete successfully with financial institutions that are larger and have more capital and that may have a stronger local presence and longer operating history outside the United States.

6 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

We have experienced intense price competition in some of our businesses in recent years. For example, over the past several years the increasing volume of trades executed electronically, through the internet and through alternative trading systems, has increased the pressure on trading commissions, in that commissions for "low-touch" electronic trading are generally lower than for "high-touch" non-electronic trading. It appears that this trend toward electronic and other "low-touch," low-commission trading will continue. In addition, we believe that we will continue to experience competitive pressures in these and other areas in the future as some of our competitors seek to obtain market share by further reducing prices.

The provisions of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the requirements promulgated by the Basel Committee on Banking Supervision (Basel Committee) and other financial regulation could affect our competitive position to the extent that limitations on activities, increased fees and compliance costs or other regulatory requirements do not apply, or do not apply equally, to all of our competitors or are not implemented uniformly across different jurisdictions. The impact of the Dodd-Frank Act and other regulatory developments on our competitive position will depend to a large extent on the manner in which the required rulemaking and regulatory guidance evolve, the extent of international convergence, and the development of market practice and structures under the new regulatory regimes as discussed further under "Regulation" below.

We also face intense competition in attracting and retaining qualified employees. Our ability to continue to compete effectively will 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. Our pay practices and those of our principal competitors are subject to review by, and the standards of, the Federal Reserve Board and regulators outside the United States, including the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) in the United Kingdom. See "Regulation - Banking Regulation" and "Regulation - Compensation Practices" below and "Risk Factors - Our businesses may be adversely affected if we are unable to hire and retain qualified employees" in Part I, Item 1A of the 2013 Form 10-K for more information on the regulation of our compensation practices.

Regulation

As a participant in the banking, securities, investment management, and derivatives industries, we are subject to extensive regulation worldwide. Regulatory bodies around the world are generally charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of the customers of market participants, including depositors in banking entities and the customers of broker-dealers, investment advisers, swap dealers and security-based swap dealers.

The financial services industry has been the subject of intense regulatory scrutiny in recent years. Our businesses have been subject to increasing regulation and supervision in the United States and other countries, and we expect this trend to continue in the future. In particular, the Dodd-Frank Act, which was enacted in July 2010, significantly altered the financial regulatory regime within which we operate. The implications of the Dodd-Frank Act for our businesses will depend to a large extent on the implementation of the legislation by the Federal Reserve Board, the FDIC, the SEC, the U.S. Commodity Futures Trading Commission (CFTC) and other agencies, as well as the development of market practices and structures under the regime established by the legislation and the implementing rules. Other reforms have been adopted or are being considered by other regulators and policy makers worldwide, as discussed further throughout this section. We will continue to update our business, risk management, and compliance practices to conform to developments in the regulatory environment.

Bank Holding Company Regulation

Group Inc. is a bank holding company under the Bank Holding Company Act of 1956 (BHC Act) and a financial holding company under amendments to the BHC Act effected by the U.S. Gramm-Leach-Bliley Act of 1999 (GLB Act).

Goldman Sachs 2013 Form 10-K 7
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Supervision and Regulation

As a bank holding company and a financial holding company under the BHC Act, Group Inc. is subject to supervision and examination by the Federal Reserve Board. Under the system of "functional regulation" established under the BHC Act, the Federal Reserve Board serves as the primary regulator of our consolidated organization, but generally defers to the primary regulators of our U.S. non-bank subsidiaries with respect to the activities of those subsidiaries. Such "functionally regulated" non-bank subsidiaries include broker-dealers registered with the SEC, such as our principal U.S. broker-dealer, Goldman, Sachs & Co. (GS&Co.), entities registered with or regulated by the CFTC with respect to futures-related and swaps-related activities and investment advisers registered with the SEC with respect to their investment advisory activities.

As discussed further below, our subsidiary, GS Bank USA, is supervised and regulated by the Federal Reserve Board, the FDIC, the New York State Department of Financial Services and the Consumer Financial Protection Bureau (CFPB). In addition, Group Inc. has two limited purpose trust company subsidiaries that are not permitted to accept deposits or make loans (other than as incidental to their trust activities) and are not insured by the FDIC. The Goldman Sachs Trust Company, N.A., a national banking association that is limited to fiduciary activities, is regulated by the Office of the Comptroller of the Currency and is a member bank of the Federal Reserve System. The Goldman Sachs Trust Company of Delaware, a Delaware limited purpose trust company, is regulated by the Office of the Delaware State Bank Commissioner.

Activities

The BHC Act generally restricts bank holding companies from engaging in business activities other than the business of banking and certain closely related activities. Financial holding companies, however, generally can engage in a broader range of financial and related activities than are otherwise permissible for bank holding companies as long as they continue to meet the eligibility requirements for financial holding companies. These requirements include that the financial holding company and each of its U.S. depository institution subsidiaries maintain their status as "well-capitalized" and "well-managed." The broader range of permissible activities for financial holding companies includes underwriting, dealing and making markets in securities and making investments in non-financial companies. In addition, financial holding companies are permitted under the GLB Act to engage in certain commodities activities in the United States that may otherwise be impermissible for bank holding companies, so long as the assets held pursuant to these activities do not equal 5% or more of their consolidated assets.

The Federal Reserve Board, however, has the authority to limit our ability to conduct activities that would otherwise be permissible for a financial holding company, and will do so if we do not satisfactorily meet certain requirements of the Federal Reserve Board. In addition, we are required to obtain prior Federal Reserve Board approval before engaging in certain banking and other financial activities both in the United States and abroad.

Volcker Rule

In December 2013, the final rules to implement the provisions of the Dodd-Frank Act referred to as the "Volcker Rule" were adopted. We are required to be in compliance with the rule (including the development of an extensive compliance program) by July 2015 with certain provisions of the rule subject to possible extensions through July 2017.

The Volcker rule prohibits "proprietary trading," but will allow activities such as underwriting, market making and risk-mitigation hedging. In anticipation of the final rule, we evaluated this prohibition and determined that businesses that engage in "bright line" proprietary trading were most likely to be prohibited. In 2010 and 2011, we liquidated substantially all of our Global Macro Proprietary and Principal Strategies trading positions.

In addition to the prohibition on proprietary trading, the Volcker rule limits the sponsorship of, and investment in, "covered funds" (as defined in the rule) by banking entities, including Group Inc. and its subsidiaries. It also limits certain types of transactions between us and our sponsored funds, similar to the limitations on transactions between depository institutions and their affiliates as described below under "- Transactions with Affiliates." Covered funds include our private equity funds, certain of our credit and real estate funds, and our hedge funds. The limitation on investments in covered funds requires us to reduce our investment in each such fund to 3% or less of the fund's net asset value, and to reduce our aggregate investment in all such funds to 3% or less of our Tier 1 capital. In anticipation of the final rule, we limited our initial investment in certain new covered funds to 3% of the fund's net asset value.

We continue to manage our existing funds, taking into account the transition periods under the Volcker Rule. As a result, in March 2012, we began redeeming certain interests in our hedge funds and will continue to do so.

8 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

For certain of our covered funds, in order to be compliant with the Volcker Rule by the prescribed compliance date, to the extent that the underlying investments of the particular funds are not sold, the firm may be required to sell its investments in such funds. If that occurs, the firm may receive a value for its investments that is less than the then carrying value, as there could be a limited secondary market for these investments and the firm may be unable to sell them in orderly transactions.

Although our net revenues from investments in our private equity, credit, real estate and hedge funds may vary from period to period, our aggregate net revenues from these investments were not material to our aggregate total net revenues over the period from 1999 through 2013.

Leveraged Lending

In March 2013, the U.S. federal bank regulatory agencies (Agencies) issued updated guidance on leveraged lending. The guidance focuses on transaction structures and risk management frameworks and outlines high-level principles for safe-and-sound leveraged lending, including underwriting standards, valuation and stress testing. Although the full impact of the guidance remains uncertain, implementation of this guidance and any related changes in the leveraged lending market could adversely affect our leveraged lending business.

Capital and Liquidity Requirements

As a bank holding company, we are subject to consolidated regulatory capital requirements administered by the Federal Reserve Board, and GS Bank USA is subject to broadly similar capital requirements.

Under the Federal Reserve Board's capital adequacy requirements and, in the case of GS Bank USA, the regulatory framework for prompt corrective action, both Group Inc. and GS Bank USA must meet specific regulatory capital requirements that involve quantitative measures of assets, liabilities and certain off-balance-sheet items. The sufficiency of our capital levels and those of GS Bank USA, as well as GS Bank USA's prompt corrective action classification, are also subject to qualitative judgments by regulators.

Other regulated subsidiaries, including GS&Co. and Goldman Sachs International (GSI), are also subject to capital requirements. We expect Group Inc., GS Bank USA, GS&Co., GSI and other regulated subsidiaries to become subject to increased capital requirements over time.

Capital Ratios. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Equity Capital - Consolidated Regulatory Capital Ratios" in Part II, Item 7 of the 2013 Form 10-K and Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for information on our Tier 1 capital ratio, Tier 1 capital, Total capital ratio, total capital, risk-weighted assets (RWAs) including the market risk capital rules, Tier 1 leverage ratio, Common Equity Tier 1 (defined below), Common Equity Tier 1 ratio and Tier 1 supplementary leverage ratio (supplementary leverage ratio), and for a discussion of minimum required ratios.

Revised market risk capital rules of the Federal Reserve Board became effective on January 1, 2013. These rules required the addition of several new model-based capital requirements, as well as an increase in capital requirements for securitization positions, and were designed to implement the new market risk framework of the Basel Committee, as well as a prohibition on the use of external credit ratings, as required by the Dodd-Frank Act.

Changes in Capital Requirements. The Agencies have approved revised risk-based capital and leverage ratio regulations establishing a new comprehensive capital framework for U.S. banking organizations (Revised Capital Framework). These regulations are largely based on the Basel Committee's December 2010 final capital framework for strengthening international capital standards (Basel III), and significantly revise the risk-based capital and leverage ratio requirements applicable to bank holding companies as compared to the previous U.S. risk-based capital and leverage ratio rules, and thereby, implement certain provisions of the Dodd-Frank Act.

Under the Revised Capital Framework, Group Inc. is an "Advanced approach" banking organization. Below are the aspects of the rules that are most relevant to us as an Advanced approach banking organization.

Goldman Sachs 2013 Form 10-K 9
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Definition of Capital and Capital Ratios. The Revised Capital Framework introduced changes to the definition of regulatory capital, which, subject to transitional provisions, became effective across our regulatory capital and leverage ratios on January 1, 2014. These changes include the introduction of a new capital measure called Common Equity Tier 1 (CET1), and the related regulatory capital ratio of CET1 to RWAs (CET1 ratio). In addition, the definition of Tier 1 capital has been narrowed to include only CET1 and instruments such as perpetual non-cumulative preferred stock that meet certain criteria.

Certain aspects of the revised requirements phase in over time. These include increases in the minimum capital ratio requirements and the introduction of new capital buffers and certain deductions from regulatory capital (such as investments in nonconsolidated financial institutions). In addition, junior subordinated debt issued to trusts is being phased out of regulatory capital. It is first phased out of Tier 1 capital but is eligible as Tier 2 capital for an interim period through December 31, 2015, after which it will also be phased out of Tier 2 capital through December 31, 2021.

The minimum CET1 ratio is 4.0% as of January 1, 2014 and will increase to 4.5% on January 1, 2015. The minimum Tier 1 capital ratio increased from 4.0% to 5.5% on January 1, 2014 and will increase to 6.0% beginning January 1, 2015. The minimum Total capital ratio remains unchanged at 8.0%. These minimum ratios will be supplemented by a new capital conservation buffer that phases in, beginning on January 1, 2016, in increments of 0.625% per year until it reaches 2.5% on January 1, 2019. The Revised Capital Framework also introduces a new counter-cyclical capital buffer, to be imposed in the event that national supervisors deem it necessary in order to counteract excessive credit growth.

Certain adjustments to calculate CET1 are subject to transition provisions. Most items that were previously deducted from Tier 1 capital become deductions from CET1, many of which transition into CET1 deductions at a rate of 20% per year, beginning in January 2014. The Revised Capital Framework also introduced new deductions from CET1 (such as investments in nonconsolidated financial institutions), which are also phased in as CET1 deductions at a rate of 20% per year with residual amounts subject to risk weighting.

Risk-Weighted Assets. In February 2014, the Federal Reserve Board informed us that we have completed a satisfactory "parallel run," as required of Advanced approach banking organizations under the Revised Capital Framework, and therefore changes to RWAs will take effect beginning with the second quarter of 2014. Accordingly, the calculation of RWAs in future quarters will be based on the following methodologies:

Ÿ

During the first quarter of 2014 - the Basel I risk-based capital framework adjusted for certain items related to existing capital deductions and the phase-in of new capital deductions (Basel I Adjusted);

Ÿ

During the remaining quarters of 2014 - the higher of RWAs computed under the Basel III Advanced approach or the Basel I Adjusted calculation; and

Ÿ

Beginning in the first quarter of 2015 - the higher of RWAs computed under the Basel III Advanced or Standardized approach.

The primary difference between the Standardized approach and the Basel III Advanced approach is that the Standardized approach utilizes prescribed risk-weightings and does not contemplate the use of internal models to compute exposure for credit risk on derivatives and securities financing transactions, whereas the Basel III Advanced approach permits the use of such models, subject to supervisory approval. In addition, RWAs under the Standardized approach depend largely on the type of counterparty (e.g., whether the counterparty is a sovereign, bank, broker-dealer or other entity), rather than on assessments of each counterparty's creditworthiness. Furthermore, the Standardized approach does not include a capital requirement for operational risk. RWAs for market risk under both the Standardized and Basel III Advanced approaches are based on the Federal Reserve Board's revised market risk regulatory capital requirements described above.

For information on our RWAs, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Equity Capital - Risk-Weighted Assets" in Part II, Item 7 of the 2013 Form 10-K.

10 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Regulatory Leverage Ratios. The Revised Capital Framework increased the minimum Tier 1 leverage ratio applicable to us from 3% to 4% effective January 1, 2014.

In addition, the Revised Capital Framework will introduce a new supplementary leverage ratio for Advanced approach banking organizations, which compares Tier 1 capital (as defined under the Revised Capital Framework) to a measure of leverage exposure (defined as the sum of our assets less certain CET1 deductions plus certain off-balance-sheet exposures).

The Revised Capital Framework requires a minimum supplementary leverage ratio of 3%, effective January 1, 2018, but with disclosure required beginning in the first quarter of 2015.

Liquidity Ratios under Basel III. Historically, regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, both in the United States and internationally, without required formulaic measures. Basel III will require banks and bank holding companies to measure their liquidity against two specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, will be mandated by regulation. One test, referred to as the liquidity coverage ratio, is designed to ensure that the entity maintains an adequate level of unencumbered high-quality liquid assets under an acute liquidity stress scenario. The other, referred to as the net stable funding ratio, is designed to promote more medium- and long-term funding of the assets and activities of these entities over a one-year time horizon. These requirements may incentivize banking entities to increase their holdings of securities that qualify as high-quality liquid assets and increase the use of long-term debt as a funding source. Under the Basel Committee's framework, the liquidity coverage ratio would be introduced on January 1, 2015; however there would be a phase-in period whereby firms would have a 60% minimum in 2015, which would be raised 10% per year until it reaches 100% in 2019. The net stable funding ratio is not expected to be introduced as a requirement until January 1, 2018.

In October 2013, the Agencies issued a proposal on minimum liquidity standards that is generally consistent with the Basel Committee's framework as described above, but with certain modifications to the high-quality liquid asset definition and expected cash outflow assumptions, and accelerated transition provisions. In addition, under the proposed accelerated transition timeline, the liquidity coverage ratio would be introduced on January 1, 2015; however, there would be an accelerated U.S. phase-in period whereby firms would have an 80% minimum in 2015 which would be raised 10% per year until it reaches 100% in 2017.

While the principles behind the new frameworks proposed by the Basel Committee and the Agencies are broadly consistent with our current liquidity management framework, it is possible that the refinement and implementation of these standards could impact our liquidity and funding requirements and practices.

Stress Tests. In October 2012, the Federal Reserve Board issued final rules implementing the requirements of the Dodd-Frank Act concerning the Dodd-Frank Act supervisory stress tests to be conducted by the Federal Reserve Board and semi-annual company-run stress tests for bank holding companies with total consolidated assets of $50 billion or more. The stress test rules require increased involvement by boards of directors in stress testing and, since March 2013, public disclosure of the results of both the Federal Reserve Board's annual stress tests and a bank holding company's annual supervisory stress tests, and semi-annual internal stress tests. Certain stress test requirements are also applicable to GS Bank USA, as discussed below.

We published a summary of our annual Dodd-Frank Act stress test results under the Federal Reserve Board's severely adverse scenario in March 2013. We submitted the results of our mid-cycle Dodd-Frank Act stress test to the Federal Reserve Board in July 2013 and we published a summary of our mid-cycle Dodd-Frank Act stress test results under our internally developed severely adverse scenario in September 2013. Our internally developed severely adverse scenario is designed to stress the firm's risks and idiosyncratic vulnerabilities and assess the firm's pro-forma capital position and ratios under the hypothetical stressed environment. We provide additional information on our annual and mid-cycle Dodd-Frank Act stress test results on our web site as described under "Available Information" below. Our annual Dodd-Frank Act stress test submission is incorporated into the annual capital plans that we are required to submit to the Federal Reserve Board as part of the Comprehensive Capital Analysis and Review (CCAR).

Goldman Sachs 2013 Form 10-K 11
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Payment of Dividends and Stock Repurchases. Dividend payments by Group Inc. to its shareholders and stock repurchases by Group Inc. are subject to the oversight of the Federal Reserve Board. The dividend and share repurchase policies of large bank holding companies, such as Group Inc., are reviewed by the Federal Reserve Board based on capital plans and stress tests submitted by the bank holding company, and will be assessed against, among other things, the bank holding company's ability to meet and exceed minimum regulatory capital ratios under stressed scenarios, its expected sources and uses of capital over the planning horizon (generally a period of two years) under baseline and stressed scenarios, and any potential impact of changes to its business plan and activities on its capital adequacy and liquidity. The purpose of the capital plan review is to ensure that these institutions have robust, forward-looking capital planning processes that account for each institution's unique risks and that permit continued operations during times of economic and financial stress. As part of the capital plan review, the Federal Reserve Board will evaluate an institution's plan to make capital distributions, such as repurchasing or redeeming stock or increasing dividend payments, across a range of macro-economic and firm-specific assumptions.

As part of our initial 2013 CCAR submission, the Federal Reserve Board informed us that it did not object to our proposed capital actions through the first quarter of 2014, including the repurchase of outstanding common stock, an increase in our quarterly common stock dividend, and the possible issuance, redemption and modification of other capital securities. As required by the Federal Reserve Board, we resubmitted our 2013 capital plan in September 2013, incorporating certain enhancements to our stress testing process. In December 2013, the Federal Reserve Board informed us that it did not object to our resubmitted capital plan. We submitted our 2014 CCAR to the Federal Reserve in January 2014 and expect to publish a summary of our annual Dodd-Frank Act stress test results in March 2014.

Enhanced Prudential Standards. In February 2014, the Federal Reserve Board adopted rules to implement certain of the enhanced prudential standards contemplated by the Dodd-Frank Act. Beginning January 1, 2015, the rules require bank holding companies with $50 billion or more in total consolidated assets to comply with enhanced liquidity and overall risk management standards, including a buffer of highly liquid assets based on projected funding needs for 30 days, and increased involvement by boards of directors in liquidity and overall risk management. The liquidity buffer is in addition to the Agencies' proposal on minimum liquidity standards discussed above. Although the rules are broadly consistent with our current liquidity and overall risk management frameworks, it is possible that the implementation of the rules could impact our liquidity, funding and risk management practices.

Regulatory Proposals

In addition to the regulatory rule changes that have already been adopted (as discussed above), both the Federal Reserve Board and the Basel Committee have proposed other changes, which are discussed below. The full impact of these proposals on the firm will not be known with certainty until after any resulting rules are finalized and market practices develop under the final rules. Furthermore, these proposals, the Dodd-Frank Act, other reform initiatives proposed and announced by the Agencies, the Basel Committee, and other governmental entities and regulators (including the European Union (EU), the PRA and the FCA) are not in all cases consistent with one another, which adds further uncertainty to our future capital, leverage and liquidity requirements, and those of our subsidiaries.

12 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Federal Reserve Board Proposals. In December 2011, the Federal Reserve Board proposed rules to implement the enhanced prudential standards and early remediation requirements contemplated by the Dodd-Frank Act. Although many of these proposals have now been addressed in final rules that are described above, the single-counterparty credit limits and early remediation requirements are still under consideration. The proposed single-counterparty credit limits impose more stringent requirements for credit exposure among major financial institutions, which (together with other provisions incorporated into the Basel III capital rules) may affect our ability to transact or hedge with other financial institutions. The proposed early remediation rules are modeled on the prompt corrective action regime, described below, but are designed to require action to begin in earlier stages of a company's financial distress, based on a range of triggers, including capital and leverage, stress test results, liquidity and risk management.

Subsequent to the approval of the Revised Capital Framework, the Agencies issued a proposal to increase the minimum supplementary leverage ratio requirement for the largest U.S. banks (those deemed to be global systemically important banking institutions (G-SIBs) under the Basel G-SIB framework). These proposals would require us and other G-SIBs to meet a 5% supplementary leverage ratio (comprised of the current minimum requirement of 3% plus a 2% buffer). In addition, the Basel Committee recently finalized revisions that would increase the size of the leverage exposure for purposes of the supplementary leverage ratio, but would retain a minimum supplementary leverage ratio requirement of 3%. It is not known with certainty at this point whether the U.S. regulators will adopt this revised definition of leverage into their rules and proposals for the supplementary leverage ratio.

Basel Committee Proposals. The Basel Committee has updated its methodology for assessing the global systemic importance of banking institutions and determining the range of additional CET1 that should be maintained by those deemed to be G-SIBs. The required amount of additional CET1 for these institutions will initially range from 1% to 2.5% and could be higher in the future for a banking institution that increases its systemic footprint (e.g., by increasing total assets). In November 2013, the Financial Stability Board (established at the direction of the leaders of the Group of 20) indicated that we would be required to hold an additional 1.5% of CET1 as a G-SIB,

based on our 2012 financial data. The final determination of the amount of additional CET1 that we will be required to hold will initially be based on our 2013 financial data and the manner and timing of the U.S. banking regulators' implementation of the Basel Committee's methodology. The Basel Committee indicated that G-SIBs will be required to meet the capital surcharges on a phased-in basis beginning in 2016 through 2019.

The Basel Committee has also published its final guidelines for calculating incremental capital requirements for domestic systemically important banking institutions (D-SIBs). These guidelines are complementary to the framework outlined above for G-SIBs, but are more principles-based in order to provide an appropriate degree of national discretion. The impact of these guidelines on the regulatory capital requirements of GS Bank USA, GSI and other of our subsidiaries will depend on how they are implemented by the banking and non-banking regulators in the United States and other jurisdictions.

The Basel Committee has released other consultation papers that may result in further changes to regulatory capital requirements, including a "Fundamental Review of the Trading Book" and "Revisions to the Basel Securitization Framework."

Resolution and Recovery Plans

As required by the Dodd-Frank Act, the Federal Reserve Board and FDIC have jointly issued a rule requiring each bank holding company with over $50 billion in assets and each designated systemically important financial institution to provide to regulators an annual plan for its rapid and orderly resolution in the event of material financial distress or failure (resolution plan). Our resolution plan must, among other things, demonstrate that GS Bank USA is adequately protected from risks arising from our other entities. The regulators' joint rule sets specific standards for the resolution plans, including requiring a detailed resolution strategy and analyses of the company's material entities, organizational structure, interconnections and interdependencies, and management information systems, among other elements. In April 2013, the Federal Reserve Board and the FDIC provided additional guidance to us relating to our 2013 resolution plan. Group Inc. submitted its 2013 resolution plan to its regulators in September 2013. Group Inc. is also required to submit, on an annual basis, a global recovery plan to regulators that outlines the steps that management could take over time to reduce risk, raise liquidity, and conserve capital in times of prolonged stress. We have been submitting yearly plans since 2010.

Goldman Sachs 2013 Form 10-K 13
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Source of Strength

Federal Reserve Board policy historically has required bank holding companies to act as a source of strength to their bank subsidiaries and to commit capital and financial resources to support those subsidiaries. The Dodd-Frank Act codifies this policy as a statutory requirement. This support may be required by the Federal Reserve Board at times when we might otherwise determine not to provide it. Capital loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of the subsidiary bank. In addition, if a bank holding company commits to a federal bank regulator that it will maintain the capital of its bank subsidiary, whether in response to the Federal Reserve Board's invoking its source-of-strength authority or in response to other regulatory measures, that commitment will be assumed by the bankruptcy trustee and the bank will be entitled to priority payment in respect of that commitment, ahead of other creditors of the bank holding company.

The BHC Act provides for regulation of bank holding company activities by various functional regulators and prohibits the Federal Reserve Board from requiring a payment by a holding company subsidiary to a depository institution if the functional regulator of that subsidiary objects to such payment. In such a case, the Federal Reserve Board could instead require the divestiture of the depository institution and impose operating restrictions pending the divestiture.

Compensation Practices

Our compensation practices are subject to oversight by the Federal Reserve Board and, with respect to some of our subsidiaries and employees, by other financial regulatory bodies worldwide. The scope and content of compensation regulation in the financial industry are continuing to develop, and we expect that these regulations and resulting market practices will evolve over a number of years.

In June 2010, the Agencies jointly issued guidance designed to ensure that incentive compensation arrangements at banking organizations take into account risk and are consistent with safe and sound practices. The guidance sets forth the following three key principles with respect to incentive compensation arrangements: the arrangements should provide employees with incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risk; the arrangements should be compatible with effective controls and risk management; and the arrangements should be supported by strong corporate governance. In addition, the Federal Reserve

Board has conducted a review of the incentive compensation policies and practices of a number of large, complex banking organizations, including us. The June 2010 guidance provides that supervisory findings with respect to incentive compensation will be incorporated, as appropriate, into the organization's supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The guidance also provides that enforcement actions may be taken against a banking organization if its incentive compensation arrangements or related risk management, control or governance processes pose a risk to the organization's safety and soundness.

The Financial Stability Board has released standards for implementing certain compensation principles for banks and other financial companies designed to encourage sound compensation practices. These standards are to be implemented by local regulators. In Europe, the Fourth Capital Requirements Directive (CRD4) includes compensation provisions designed to implement the Financial Stability Board's compensation standards within the EU. These rules are being implemented by EU member states and, among other things, limit the ratio of variable to fixed compensation of certain employees identified as having a material impact on the risk profile of EU-regulated entities, including GSI and certain other affiliates. These requirements are in addition to the guidance issued by U.S. financial regulators discussed above and the Dodd-Frank Act provision discussed below.

The Dodd-Frank Act requires the U.S. financial regulators, including the Federal Reserve Board, to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets (which would include Group Inc. and some of its depository institution, broker-dealer and investment advisor subsidiaries) that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure to regulators of incentive-based compensation arrangements. The initial version of these regulations was proposed by the U.S. financial regulators in early 2011 but the regulations have not yet been finalized. The proposed regulations incorporate the three key principles from the June 2010 regulatory guidance discussed above. If the regulations are adopted in the form initially proposed, they may restrict our flexibility with respect to the manner in which we structure compensation.

14 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Regulation of GS Bank USA

Our subsidiary, GS Bank USA, an FDIC-insured, New York State-chartered bank and a member of the Federal Reserve System, is supervised and regulated by the Federal Reserve Board, the FDIC, the New York State Department of Financial Services and the CFPB, and is subject to minimum capital requirements (described below) that are calculated in a manner similar to those applicable to bank holding companies. A number of our activities are conducted partially or entirely through GS Bank USA and its subsidiaries, including: origination of bank loans; interest rate, credit, currency and other derivatives; leveraged finance; mortgage origination; structured finance; and agency lending.

Under rules adopted by the Agencies in 2012 under the Dodd-Frank Act, GS Bank USA is required to undertake stress tests, to submit the results to the Federal Reserve Board, and to make a summary of those results public. The rules require that the board of directors of GS Bank USA, among other things, consider the results of the stress tests in the normal course of the bank's business including, but not limited to, its capital planning, assessment of capital adequacy and risk management practices.

The Dodd-Frank Act contains "derivative push-out" provisions that will prevent us from conducting certain swaps-related activities through GS Bank USA, subject to exceptions for certain interest rate, currency and cleared credit default swaps and for hedging or risk mitigation activities directly related to the bank's business. In July 2013, the Federal Reserve Board granted GS Bank USA an extension through July 2015 to comply with these derivative push-out provisions. Precluded activities may be conducted elsewhere within the firm, subject to certain requirements and potential registration as a swap or security-based swap dealer.

In addition, New York State banking law imposes lending limits (which take into account credit exposure from derivative transactions) and other requirements that could impact the manner and scope of GS Bank USA's activities.

Transactions with Affiliates. Transactions between GS Bank USA or its subsidiaries, on the one hand, and Group Inc. or its other subsidiaries and affiliates, on the other hand, are regulated by the Federal Reserve Board under the Federal Reserve Act. The statute and the related regulations limit the types and amounts of transactions (including credit extensions from GS Bank USA or its subsidiaries to Group Inc. or its other subsidiaries and affiliates) that may take place and generally require those transactions to be on market terms or better to GS Bank USA. These regulations generally do not apply to transactions between GS Bank USA and its subsidiaries. The Dodd-Frank Act significantly expands the coverage and scope of the regulations that limit affiliate transactions within a banking organization, including by applying these regulations to the credit exposure arising under derivative transactions, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions.

Federal and state laws impose limitations on the payment of dividends by our depository institution subsidiaries to Group Inc. In general, the amount of dividends that may be paid by GS Bank USA or our national bank trust company subsidiary 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). The 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 2013 Form 10-K 15
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Deposit Insurance. GS Bank USA accepts deposits, and those deposits have the benefit of FDIC insurance up to the applicable limits. The FDIC's Deposit Insurance Fund is funded by assessments on insured depository institutions, such as GS Bank USA. The amounts of these assessments for larger depository institutions (generally those that have $10 billion in assets or more), such as GS Bank USA, are currently based on the average total consolidated assets less the average tangible equity of the insured depository institution during the assessment period, the supervisory ratings of the insured depository institution and specified forward-looking financial measures used to calculate the assessment rate. The assessment rate is subject to adjustment by the FDIC.

Prompt Corrective Action and Capital Ratios. The U.S. Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), among other things, requires the federal banking agencies to take "prompt corrective action" in respect of depository institutions that do not meet specified capital requirements. FDICIA establishes five capital categories for FDIC-insured banks: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

A depository institution is generally deemed to be "well-capitalized," the highest category, if it has a Tier 1 capital ratio of at least 6%, a Total capital ratio of at least 10% and a Tier 1 leverage ratio of at least 5%. GS Bank USA has agreed with the Federal Reserve Board to maintain minimum capital ratios in excess of these "well-capitalized" levels. Under the Revised Capital Framework, as of January 1, 2014, GS Bank USA became subject to a new minimum CET1 ratio requirement of 4%, increasing to 4.5% in 2015. In addition, the Revised Capital Framework changes the standards for "well-capitalized" status under prompt corrective action regulations beginning January 1, 2015 by, among other things, introducing a CET1 ratio requirement of 6.5% and increasing the Tier 1 capital ratio requirement from 6% to 8%. In addition, commencing, January 1, 2018, Advanced approach banking organizations, such as GS Bank USA, must have a supplementary leverage ratio of 3% or greater. Shortly after the approval of the Revised Capital Framework, in July 2013, the Agencies issued a proposal that would also require that U.S. insured depository institution subsidiaries of U.S. G-SIBs, such as GS Bank USA, meet a "well-capitalized" supplementary leverage ratio requirement of 6%, which would be effective beginning January 1, 2018 if the proposal is enacted as proposed.

See Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for information on GS Bank USA's regulatory capital ratios.

GS Bank USA computes its risk-based capital ratios in accordance with the regulatory capital requirements applicable to state member banks, which are based on the Federal Reserve Board's risk-based capital requirements applicable to bank holding companies. As of December 2013, these capital requirements were based on the Basel I Capital Accord of the Basel Committee, and also reflected the revised market risk regulatory capital requirements as implemented by the Federal Reserve Board, which became effective on January 1, 2013.

The Revised Capital Framework is also applicable to GS Bank USA, which is an Advanced approach banking organization under this framework. GS Bank USA has also been informed by the Federal Reserve Board that it has completed a satisfactory parallel run, as required of Advanced approach banking organizations under the Revised Capital Framework, and therefore changes to its calculations of RWAs will take effect beginning with the second quarter of 2014.

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. Ultimately, critically undercapitalized institutions are subject to the appointment of a receiver or conservator, as described under "- Insolvency of an Insured Depository Institution or a Bank Holding Company" below.

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

16 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Insolvency of an Insured Depository Institution or a Bank Holding Company

Under the Federal Deposit Insurance Act of 1950, if the FDIC is appointed as conservator or receiver for an insured depository institution such as GS Bank USA, upon its insolvency or in certain other events, the FDIC has broad powers, including the power:

Ÿ

to transfer any of the depository institution's assets and liabilities to a new obligor, including a newly formed "bridge" bank, without the approval of the depository institution's creditors;

Ÿ

to enforce the terms of the depository institution's contracts pursuant to their terms without regard to any provisions triggered by the appointment of the FDIC in that capacity; or

Ÿ

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

In addition, under federal law, the claims of holders of domestic deposit liabilities and certain claims for administrative expenses against an insured depository institution would be afforded a priority over other general unsecured claims, including deposits at non-U.S. branches, against such an institution, including claims of debt holders 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 debt obligations of GS Bank USA, the debt holders (other than depositors) would be treated differently 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 bank holding companies and their affiliates, and systemically important non-bank financial companies. Under the orderly liquidation authority, the FDIC may be appointed as receiver for the systemically important institution, and its failed non-bank subsidiaries, for purposes of liquidating the entity if, among other conditions, it is determined at the time of the institution's failure that it is in default or in danger of default and the failure poses a risk to the stability of the U.S. financial system.

If the FDIC is appointed as receiver under the orderly liquidation authority, then the powers of the receiver, and the rights and obligations of creditors and other parties who have dealt with the institution, would be determined under the orderly liquidation authority, and not under the insolvency law that would otherwise apply. The powers of the receiver under the orderly liquidation authority were generally based on the powers of the FDIC as receiver for depository institutions under the Federal Deposit Insurance Act. Substantial differences in the rights of creditors exist between the orderly liquidation authority and the U.S. Bankruptcy Code, including the right of the FDIC under the orderly liquidation authority to disregard the strict priority of creditor claims in some circumstances, the use of an administrative claims procedure to determine creditors' claims (as opposed to the judicial procedure utilized in bankruptcy proceedings), and the right of the FDIC to transfer claims to a "bridge" entity. In addition, the orderly liquidation authority limits the ability of creditors to enforce certain contractual cross-defaults against affiliates of the institution in receivership.

The orderly liquidation authority provisions of the Dodd-Frank Act became effective upon enactment. The FDIC has completed several rulemakings under the orderly liquidation authority, but may provide additional guidance. New guidance may affect the manner in which the new authority is applied, particularly with respect to broker-dealer and futures commission merchant subsidiaries of bank holding companies. The FDIC issued a notice in December 2013 describing some elements of its "single point of entry" or "SPOE" strategy pursuant to the orderly liquidation authority provisions of the Dodd-Frank Act, under which the FDIC would, among other things, resolve a failed financial holding company by transferring its assets to a "bridge" holding company.

Resolution Plan

The FDIC issued a rule requiring each insured depository institution with $50 billion or more in assets, such as GS Bank USA, to provide a resolution plan. Similar to our resolution plan for Group Inc., our resolution plan for GS Bank USA must, among other things, demonstrate that it is adequately protected from risks arising from our other entities. GS Bank USA submitted its 2013 resolution plan to its regulators in September 2013.

Goldman Sachs 2013 Form 10-K 17
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Broker-Dealer and Securities Regulation

Goldman Sachs' broker-dealer subsidiaries are subject to regulations that cover all aspects of the securities business, including sales methods, trade practices, use and safekeeping of clients' funds and securities, capital structure, recordkeeping, the financing of clients' purchases, and the conduct of directors, officers and employees. In the United States, the SEC is the federal agency responsible for the administration of the federal securities laws. GS&Co. is registered as a broker-dealer, a municipal advisor and an investment adviser with the SEC and as a broker-dealer in all 50 states and the District of Columbia. Self-regulatory organizations, such as FINRA and the NYSE, adopt rules that apply to, and examine, broker-dealers such as GS&Co.

In addition, state securities and other regulators also have regulatory 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 we have offices, as discussed further under "Other Regulation" below. GSEC and one of its subsidiaries are registered U.S. broker-dealers and are regulated by the SEC, the NYSE and FINRA. For a discussion of net capital requirements applicable to GS&Co. and GSEC, see Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K.

Our exchange-based market-making activities are subject to extensive regulation by a number of securities exchanges. As a Designated Market Maker (DMM) on the NYSE and as a market maker on other exchanges, we are required to maintain orderly markets in the securities to which we are assigned. Under the NYSE's DMM rules, this may require us to supply liquidity to these markets when markets are declining.

The Dodd-Frank Act will result in additional regulation by the 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 expanded standards of care by market participants in dealing with clients and customers, including by providing the SEC with authority to adopt rules establishing fiduciary duties for broker-dealers and directing the SEC to examine and improve sales practices and disclosure by broker-dealers and investment advisers.

Our broker-dealer and other subsidiaries will also be affected by rules to be adopted by federal agencies pursuant to the Dodd-Frank Act that require any person who organizes or initiates an asset-backed security transaction to retain a portion (generally, at least five percent) of any credit risk that the person conveys to a third party. Securitizations will also be affected by rules proposed by the SEC in September 2011 to implement the Dodd-Frank Act's prohibition against securitization participants' engaging in any transaction that would involve or result in any material conflict of interest with an investor in a securitization transaction. The proposed rules would exempt bona fide market-making activities and risk-mitigating hedging activities in connection with securitization activities from the general prohibition.

The SEC, FINRA and regulators in various non-U.S. jurisdictions have imposed both conduct-based and disclosure-based requirements with respect to research reports and research analysts and may impose additional regulations.

Swaps, Derivatives and Commodities Regulation

The commodity futures, commodity options and swaps industry in the United States is subject to regulation under the U.S. Commodity Exchange Act. The CFTC is the federal agency charged with the administration of the CEA. In addition, the SEC is the federal agency charged with the regulation of security-based swaps. Several of Goldman Sachs' subsidiaries, including GS&Co. and GSEC, are registered with the CFTC and act as futures commission merchants, commodity pool operators, commodity trading advisors or (as discussed below) swap dealers, and are subject to CFTC regulations. The rules and regulations of various self-regulatory organizations, such as the Chicago Board of Trade and the Chicago Mercantile Exchange, other futures exchanges and the National Futures Association, also govern the commodity futures, commodity options and swaps activities of these entities. In addition, Goldman Sachs Financial Markets, L.P. (GSFM) is registered with the SEC as an OTC derivatives dealer and conducts certain OTC derivatives activities.

18 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

The Dodd-Frank Act provides for significantly increased regulation of and restrictions on derivative markets and transactions. In particular, the Dodd-Frank Act imposes the following requirements relating to swaps and security-based swaps:

Ÿ

real-time public and regulatory reporting of trade information for swaps and security-based swaps and large trader reporting for swaps;

Ÿ

registration of swap dealers and major swap participants with the CFTC and of security-based swap dealers and major security-based swap participants with the SEC;

Ÿ

position limits that cap exposure to derivatives on certain physical commodities;

Ÿ

mandated clearing through central counterparties and execution through regulated exchanges or electronic facilities for certain swaps and security-based swaps;

Ÿ

new business conduct standards and other requirements for swap dealers, major swap participants, security-based swap dealers and major security-based swap participants, covering their relationships with counterparties, internal oversight and compliance structures, conflict of interest rules, internal information barriers, general and trade-specific record-keeping and risk management;

Ÿ

margin requirements for trades that are not cleared through a central counterparty; and

Ÿ

entity-level capital requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants.

The terms "swaps" and "security-based swaps" are generally defined broadly for purposes of these requirements, and can include a wide variety of derivative instruments in addition to those conventionally called swaps. The definition includes certain forward contracts, options, certain loan participations and guarantees of swaps, subject to certain exceptions, and relates to a wide variety of underlying assets or obligations, including currencies, commodities, interest or other monetary rates, yields, indices, securities, credit events, loans and other financial obligations.

The CFTC is responsible for issuing rules relating to swaps, swap dealers and major swap participants, and the SEC is responsible for issuing rules relating to security-based swaps, security-based swap dealers and major security-based swap participants. Although the CFTC has not yet finalized its margin requirements or capital regulations, certain of the requirements, including registration of swap dealers, business conduct standards and real-time public trade reporting, have taken effect already under CFTC rules, and the SEC and the CFTC have finalized the definitions of a number of key terms. In addition, the CFTC has implemented rules requiring the mandatory clearing of certain credit default swaps and interest rate swaps between dealers, and between swap dealers and non-dealer financial entities. Finally, the CFTC has commenced making determinations regarding which swaps must be traded on swap execution facilities or exchanges, and certain interest rate swaps and credit default swaps are now subject to these trade-execution requirements. The CFTC is expected to continue to make such determinations during 2014.

The SEC has proposed rules to impose margin, capital and segregation requirements for security-based swap dealers and major security-based swap participants. The SEC has also proposed rules relating to registration of security-based swap dealers and major security-based swap participants, trade reporting and real-time reporting, and business conduct requirements for security-based swap dealers and major security-based swap participants, and has proposed rules and guidance on the cross-border regulation of security-based swaps. The SEC has proposed, but not yet finalized, rules that would govern the design of new trading venues for security-based swaps and establish the process for determining which products must be traded on these venues.

We have registered certain subsidiaries as "swap dealers" under the CFTC rules, including GS&Co., GS Bank USA, GSI and J. Aron & Company. We expect that these entities, and our businesses more broadly, will be subject to significant and developing regulation and regulatory oversight in connection with swap-related activities.

Goldman Sachs 2013 Form 10-K 19
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Similar regulations have been proposed or adopted in jurisdictions outside the United States, including the introduction of standardized execution and clearing, margining and reporting requirements for OTC derivatives. For instance, the EU has established a set of new regulatory requirements for EU derivatives activities under the European Market Infrastructure Regulation. These requirements include various risk management requirements that have already become effective and regulatory reporting and clearing requirements that are expected to start becoming effective in 2014.

The full application of new derivatives rules across different national and regulatory jurisdictions has not yet been fully established. In July 2013, the CFTC finalized guidance and timing on the cross-border regulation of swaps and announced that it had reached an understanding with the European Commission regarding the cross-border regulation of derivatives and the common goals underlying their respective regulations. However, specific determinations of the extent to which regulators in each of the relevant jurisdictions will defer to regulations in other jurisdictions have not yet been completed. The full impact of the various U.S. and non-U.S. regulatory developments in this area will not be known with certainty until all the rules are finalized and implemented and market practices and structures develop under the final rules.

J. Aron & Company is authorized by the U.S. Federal Energy Regulatory Commission (FERC) to sell wholesale physical power at market-based rates. As a FERC-authorized power marketer, J. Aron & Company is subject to regulation under the U.S. Federal Power Act and FERC regulations and to the oversight of FERC. As a result of our investing activities, Group Inc. is also an "exempt holding company" under the U.S. Public Utility Holding Company Act of 2005 and applicable FERC rules.

In addition, as a result of our power-related and commodities activities, we are subject to energy, environmental and other governmental laws and regulations, as discussed under "Risk Factors - Our commodities activities, particularly our physical commodities activities, subject us to extensive regulation, potential catastrophic events and environmental, reputational and other risks that may expose us to significant liabilities and costs" in Part I, Item 1A of the 2013 Form 10-K.

Investment Management Regulation

Our investment management business is subject to significant regulation in numerous jurisdictions around the world relating to, among other things, the safeguarding of client assets, offerings of funds, marketing activities, transactions among affiliates and our management of client funds. Certain of our subsidiaries are registered with, and subject to oversight by, the SEC as investment advisers. In June 2013, the SEC proposed amendments to the rules governing the regulation of money market funds, which included two alternatives that could be adopted separately or in a combined manner: a floating net asset value and/or restrictions on redemptions. The full impact of the amendments on us will not be known with certainty until the amendments are finalized and market practices and structures develop under the amended rules.

Other Regulation

The U.S. and non-U.S. government agencies, regulatory bodies and self-regulatory organizations, as well as state securities commissions and other state regulators in the United States, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease and desist orders, or the suspension or expulsion of a regulated entity or its directors, officers or employees. In addition, a number of our other activities require us to obtain licenses, adhere to applicable regulations and be subject to the oversight of various regulators in the jurisdictions in which we conduct these activities. Regulatory oversight has been increasing, as well as the level of fines and penalties imposed by regulatory agencies. Our subsidiaries are subject to various and numerous requests for information, investigations and proceedings, and sanctions have been imposed for infractions of various regulations relating to our activities.

In Europe, Goldman Sachs provides investment services that are subject to oversight by national regulators as well as the EU. These investment services are regulated in accordance with national laws, many of which implement EU directives, and increasingly by directly applicable EU regulations. These national and EU laws require, among other things, compliance with certain capital adequacy standards, customer protection requirements and market conduct and trade reporting rules.

Goldman Sachs provides investment services in and from the United Kingdom under the regulation of the PRA and the FCA. GSI, our regulated U.K. broker-dealer subsidiary, is subject to the capital requirements imposed by the PRA. Other subsidiaries, including Goldman Sachs International Bank (GSIB), our regulated U.K. bank, are also regulated by the PRA and the FCA. As of December 2013, GSI and GSIB were in compliance with the PRA capital requirements.

20 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Various other Goldman Sachs entities are regulated by the banking and securities regulatory authorities of the European countries in which they operate, including, among others, the Federal Financial Supervisory Authority (BaFin) and the Bundesbank in Germany, the Autorité de Contrôle Prudentiel and the Autorité des Marchés Financiers in France, the Central Bank of the Russian Federation and the Swiss Financial Market Supervisory Authority. In November 2014, a new Single Supervisory Mechanism will become effective, under which the European Central Bank and national supervisors will both have certain regulatory responsibilities for banks in participating EU member states. While the U.K. does not participate in this new mechanism, it will affect how the firm's banks in Germany and France are regulated and supervised.

The EU and national financial legislators and regulators have proposed or adopted numerous market reforms that may impact our businesses. These include stricter capital and liquidity requirements, including recently finalized legislation to implement Basel III capital requirements for certain of our EU subsidiaries (such as GSI). These market reforms also include rules on the recovery and resolution of EU institutions, rules on the separation of certain trading activities from deposit taking, rules on the cross-border provision of services from countries outside the European Economic Area, authorizations for regulators to impose position limits, requirements to execute certain transactions only on certain regulated venues, reporting requirements (including requirements to publish information about transactions), restrictions on short selling and credit default swaps, additional obligations and restrictions on the management and marketing of funds in the EU, sanctions for regulatory breach and further revised organizational, market structure, conduct of business and market abuse rules. In addition, the European Commission, the European Securities Market Authority and the European Banking Authority have announced or are formulating regulatory standards and other measures which will impact our European operations. Certain Goldman Sachs entities are also regulated by the European securities, derivatives and commodities exchanges of which they are members.

In February 2013, the European Commission published a proposal for enhanced cooperation in the area of financial transactions tax in response to a request from certain member states of the EU. The proposed financial transactions tax is broad in scope and would apply to transactions in a wide variety of financial instruments and derivatives. The draft legislation is still subject to further revisions and the full impact of the proposal will not be known with certainty until the legislation is finalized.

Goldman Sachs Japan Co., Ltd. (GSJCL), our regulated Japanese broker-dealer, is subject to the capital requirements imposed by Japan's Financial Services Agency. As of December 2013, GSJCL was in compliance with its capital adequacy requirements. GSJCL is also regulated by the Tokyo Stock Exchange, the Osaka Securities Exchange, the Tokyo Financial Exchange, the Japan Securities Dealers Association, the Tokyo Commodity Exchange, Securities and Exchange Surveillance Commission, Bank of Japan, the Ministry of Finance and the Ministry of Economy, Trade and Industry, among others.

Also, the Securities and Futures Commission in Hong Kong, the Monetary Authority of Singapore, the China Securities Regulatory Commission, the Korean Financial Supervisory Service, the Reserve Bank of India, the Securities and Exchange Board of India, the Australian Securities and Investments Commission and the Australian Securities Exchange, among others, regulate various of our subsidiaries and also have capital standards and other requirements comparable to the rules of the SEC. Various other Goldman Sachs entities are regulated by the banking and regulatory authorities in countries in which Goldman Sachs operates, including, among others, Brazil and Dubai.

The U.S. Bank Secrecy Act (BSA), as amended by the USA PATRIOT Act of 2001 (PATRIOT Act), contains anti-money laundering and financial transparency laws and mandated the implementation of various regulations applicable to all financial institutions, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities. Through these and other provisions, the BSA and the PATRIOT Act seek to promote the identification of parties that may be involved in terrorism, money laundering or other suspicious activities. Anti-money laundering laws outside the United States contain some similar provisions.

Goldman Sachs 2013 Form 10-K 21
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

In addition, we are subject to laws and regulations worldwide, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, relating to corrupt and illegal payments to, and hiring practices with regard to, government officials and others. The obligation of financial institutions, including Goldman Sachs, to identify their clients, to monitor for and report suspicious transactions, to monitor direct and indirect payments to government officials, to respond to requests for information by regulatory authorities and law enforcement agencies, and to share information with other financial institutions, has required the implementation and maintenance of internal practices, procedures and controls that have increased, and may continue to increase, our costs, and any failure with respect to our programs in this area could subject us to substantial liability and regulatory fines.

As discussed above, many of our subsidiaries are subject to regulatory capital requirements in jurisdictions throughout the world. Subsidiaries not subject to separate regulation may hold capital to satisfy local tax guidelines, rating agency requirements or internal policies, including policies concerning the minimum amount of capital a subsidiary should hold based upon its underlying risk.

Certain of our businesses are subject to compliance with regulations enacted by U.S. federal and state governments, the EU or other jurisdictions and/or enacted by various regulatory organizations or exchanges relating to the privacy of the information of clients, employees or others, and any failure to comply with these regulations could expose us to liability and/or reputational damage.

Available Information

Our internet address is www.gs.com and the investor relations section of our web site is located at www.gs.com/shareholders . We make available free of charge through the investor relations section of our web site, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934 (Exchange Act), as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also posted on our web site, and available in print upon request of any shareholder to our Investor Relations Department, are our certificate of incorporation and by-laws, charters for our Audit Committee, Risk Committee, Compensation Committee, and Corporate Governance, Nominating and Public Responsibilities Committee, our Policy Regarding Director Independence Determinations, our Policy on Reporting of Concerns Regarding Accounting and Other Matters, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics governing our directors, officers and employees. Within the time period required by the SEC, we will post on our web site any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer.

In addition, our web site includes information concerning:

Ÿ

purchases and sales of our equity securities by our executive officers and directors;

Ÿ

disclosure relating to certain non-GAAP financial measures (as defined in the SEC's Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time;

Ÿ

Dodd-Frank Act stress test results; and

Ÿ

the firm's risk management practices and regulatory capital ratios, as required under the disclosure-related provisions of the Federal Reserve Board's market risk capital rules.

Our Investor Relations Department can be contacted at The Goldman Sachs Group, Inc., 200 West Street, 29th Floor, New York, New York 10282, Attn: Investor Relations, telephone: 212-902-0300, e-mail: [email protected] .

22 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995

We have included or incorporated by reference in the 2013 Form 10-K, and from time to time our management may make, statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, among other things, and may also include statements about the effect of changes to the capital and leverage rules applicable to banks and bank holding companies, the impact of the Dodd-Frank Act on our businesses and operations, and various legal proceedings or mortgage-related contingencies as set forth under "Legal Proceedings" and "Certain Mortgage-Related Contingencies" in Notes 27 and 18, respectively, to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K, as well as statements about the results of our Dodd-Frank Act and firm stress tests, statements about the objectives and effectiveness of our risk management and liquidity policies, statements about trends in or growth opportunities for our businesses, statements about our future status, activities or reporting under U.S. or non-U.S. banking and financial regulation, and statements about our investment banking transaction backlog.

By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed below and under "Risk Factors" in Part I, Item 1A of the 2013 Form 10-K.

In the case of statements about our investment banking transaction backlog, such statements are subject to the risk that the terms of these transactions may be modified or that they may not be completed at all; therefore, the net revenues, if any, that we actually earn from these transactions may differ, possibly materially, from those currently expected. Important factors that could result in a modification of the terms of a transaction or a transaction not being completed include, in the case of underwriting transactions, a decline or continued weakness in general economic conditions, outbreak of hostilities, volatility in the securities markets generally or an adverse development with respect to the issuer of the securities and, in the case of financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For a discussion of other important factors that could adversely affect our investment banking transactions, see "Risk Factors" in Part I, Item 1A of the 2013 Form 10-K.

We have voluntarily provided in this filing information regarding the firm's and GS Bank USA's estimated capital ratios, including CET1 ratios under the Advanced and Standardized approaches on a fully phased-in and transitional basis, Basel I Adjusted capital ratio and supplementary leverage ratio. The statements with respect to the estimated ratios are forward-looking statements, based on our current interpretation, expectations and understandings of the Revised Capital Framework and related proposals to increase the minimum supplementary leverage ratio. The information regarding estimated ratios includes significant assumptions concerning the treatment of various assets and liabilities and the manner in which the ratios are calculated under the Revised Capital Framework. As a result, the methods used to calculate these estimates may differ, possibly materially, from those used in calculating the estimates for any future voluntary disclosures as well as those used when such ratios are required to be disclosed. The ultimate methods of calculating the ratios will depend on, among other things, the promulgation of final rules to increase the minimum supplementary leverage ratio, supervisory approval of our internal models used under the Advanced approach for calculating CET1, implementation guidance from the Agencies and the development of market practices and standards.

Goldman Sachs 2013 Form 10-K 23
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Item 1A.    Risk Factors

We face a variety of risks that are substantial and inherent in our businesses, including market, liquidity, credit, operational, legal, regulatory and reputational risks. The following are some of the more important factors that could affect our businesses.

Our businesses have been and may continue to be adversely affected by conditions in the global financial markets and economic conditions generally.

Our businesses, by their nature, do not produce predictable earnings, and all of our businesses are materially affected by conditions in the global financial markets and economic conditions generally, both directly and through their impact on client activity levels. Since 2008, these conditions have changed suddenly and, for a period of time, very negatively. In 2008 and through early 2009, the financial services industry and the securities markets generally were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. Since 2011, concerns about European sovereign debt risk and its impact on the European banking system, and about U.S. growth and uncertainty regarding U.S. federal fiscal and monetary policies, the U.S. federal debt ceiling and the continued funding of the U.S. government, have resulted, at times, in significant volatility while negatively impacting the levels of client activity.

Since 2008, governments, regulators and central banks in the United States and worldwide have taken numerous steps to increase liquidity and to restore investor and public confidence. In addition, numerous legislative and regulatory actions have been taken to deal with what regulators, politicians and others believe to be the root causes of the financial crisis, including laws and regulations relating to financial institution capital, liquidity and leverage requirements and compensation practices, restrictions on the type of activities in which financial institutions are permitted to engage, and generally increased regulatory scrutiny. Additional taxes have been, and may in the future be, imposed on us and certain other financial institutions and on financial transactions in which we engage. Many of the regulations that are required to implement this legislation (including the Dodd-Frank Act) are still being developed or are not yet in effect; therefore, the exact impact that these regulations will have on our businesses, results of operations and cash flows is presently unclear. Certain of these regulations have or will soon come into effect, and liquidity in financial markets may be negatively impacted as market participants and market practices and structures adjust to these new requirements.

National and local governments continue to face difficult financial conditions due to significant reductions in tax revenues, particularly from corporate and personal income taxes, as well as increased outlays for unemployment benefits due to high unemployment levels and the cost of stimulus programs.

General uncertainty about economic, political and market activities, and the timing and final details of regulatory reform, as well as a lack of consumer, investor and CEO confidence resulting in large part from such uncertainty, continues to negatively impact client activity which, together with low levels of volatility, has adversely affected many of our businesses.

Our revenues, profitability and return on equity are significantly below 2007 levels, due primarily to the post-2008 economic, financial and political conditions (including the uncertainty about future regulations) and their impact on the markets and the level of client activity. In addition, our revenues and profitability and those of our competitors have been and will continue to be impacted by changes resulting from the financial crisis, including increased capital requirements, minimum liquidity levels and levels of regulatory oversight, as well as limitations on the type of and manner in which certain business activities may be carried out by financial institutions. Financial institution returns have also been negatively impacted by increased funding costs due in part to the withdrawal of perceived government support of such institutions in the event of future financial crises.

The degree to which these and other changes resulting from the financial crisis will have a long-term impact on the profitability of financial institutions will depend on the final interpretation and implementation of new regulations, the manner in which markets, market participants and financial institutions adapt to the new landscape, and the prevailing economic and financial market conditions. However, there is a risk that such changes will, at least in the near-term, continue to negatively impact the absolute level of revenues, profitability and return on equity at our firm and at other financial institutions.

24 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Our financial performance is highly dependent on the environment in which our businesses operate. A favorable business environment is generally characterized by, among other factors, high global gross domestic product growth, transparent, liquid and efficient capital markets, low inflation, high business and investor confidence, stable geopolitical conditions, regulatory certainty and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by: concerns about sovereign defaults; uncertainty in U.S. federal fiscal or monetary policy, the U.S. federal debt ceiling and the continued funding of the U.S. government; uncertainty about the timing and nature of regulatory reforms; declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation, interest rates, exchange rate volatility, default rates or the price of basic commodities; outbreaks of hostilities or other geopolitical instability; corporate, political or other scandals that reduce investor confidence in capital markets; extreme weather events or other natural disasters or pandemics; or a combination of these or other factors.

Our businesses have been and may be adversely affected by declining asset values. This is particularly true for those businesses in which we have net "long" positions, receive fees based on the value of assets managed, or receive or post collateral.

Many of our businesses have net "long" positions in debt securities, loans, derivatives, mortgages, equities (including private equity and real estate) and most other asset classes. These include positions we take when we act as a principal to facilitate our clients' activities, including our exchange-based market-making activities, or commit large amounts of capital to maintain positions in interest rate and credit products, as well as through our currencies, commodities, equities and mortgage-related activities. Because substantially all of these investing, lending and market-making positions are marked-to-market on a daily basis, declines in asset values directly and immediately impact our earnings, unless we have effectively "hedged" our exposures to such declines. In certain circumstances (particularly in the case of leveraged loans and private equities or other securities that are not freely tradable or lack established and liquid trading markets), it may not be possible or economic to hedge such exposures and to the

extent that we do so the hedge may be ineffective or may greatly reduce our ability to profit from increases in the values of the assets. Sudden declines and significant volatility in the prices of assets may substantially curtail or eliminate the trading markets for certain assets, which may make it very difficult to sell, hedge or value such assets. The inability to sell or effectively hedge assets reduces our ability to limit losses in such positions and the difficulty in valuing assets may negatively affect our capital, liquidity or leverage ratios, increase our funding costs and generally require us to maintain additional capital.

In our exchange-based market-making activities, we are obligated by stock exchange rules to maintain an orderly market, including by purchasing securities in a declining market. In markets where asset values are declining and in volatile markets, this results in losses and an increased need for liquidity.

We receive asset-based management fees based on the value of our clients' portfolios or investment in funds managed by us and, in some cases, we also receive incentive fees based on increases in the value of such investments. Declines in asset values reduce the value of our clients' portfolios or fund assets, which in turn reduce the fees we earn for managing such assets.

We post collateral to support our obligations and receive collateral to support the obligations of our clients and counterparties in connection with our client execution businesses. When the value of the assets posted as collateral declines, the party posting the collateral may need to provide additional collateral or, if possible, reduce its trading position. A classic example of such a situation is a "margin call" in connection with a brokerage account. Therefore, declines in the value of asset classes used as collateral mean that either the cost of funding positions is increased or the size of positions is decreased. If we are the party providing collateral, this can increase our costs and reduce our profitability and if we are the party receiving collateral, this can also reduce our profitability by reducing the level of business done with our clients and counterparties. In addition, volatile or less liquid markets increase the difficulty of valuing assets which can lead to costly and time-consuming disputes over asset values and the level of required collateral, as well as increased credit risk to the recipient of the collateral due to delays in receiving adequate collateral.

Goldman Sachs 2013 Form 10-K 25
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Our businesses have been and may be adversely affected by disruptions in the credit markets, including reduced access to credit and higher costs of obtaining credit.

Widening credit spreads, as well as significant declines in the availability of credit, have in the past adversely affected our ability to borrow on a secured and unsecured basis and may do so in the future. We fund ourselves on an unsecured basis by issuing long-term debt, by accepting deposits at our bank subsidiaries, by issuing hybrid financial instruments, promissory notes and commercial paper or by obtaining bank loans or lines of credit. We seek to finance many of our assets on a secured basis, including by entering into repurchase agreements. Any disruptions in the credit markets may make it harder and more expensive to obtain funding for our businesses. If our available funding is limited or we are forced to fund our operations at a higher cost, these conditions may require us to curtail our business activities and increase our cost of funding, both of which could reduce our profitability, particularly in our businesses that involve investing, lending and market making.

Our clients engaging in mergers and acquisitions often rely on access to the secured and unsecured credit markets to finance their transactions. A lack of available credit or an increased cost of credit can adversely affect the size, volume and timing of our clients' merger and acquisition transactions - particularly large transactions - and adversely affect our financial advisory and underwriting businesses.

In addition, we may incur significant unrealized gains or losses due solely to changes in our credit spreads or those of third parties, as these changes may affect the fair value of our derivative instruments and the debt securities that we hold or issue, which may in turn adversely affect our results of operations and capital ratios.

Our market-making activities have been and may be affected by changes in the levels of market volatility.

Certain of our market-making activities depend on market volatility to provide trading and arbitrage opportunities to our clients, and decreases in volatility may reduce these opportunities and adversely affect the results of these activities. On the other hand, increased volatility, while it can increase trading volumes and spreads, also increases risk as measured by Value-at-Risk (VaR) and may expose us to increased risks in connection with our market-making activities or cause us to reduce our market-making positions in order to avoid increasing our VaR. Limiting the

size of our market-making positions can adversely affect our profitability. In periods when volatility is increasing, but asset values are declining significantly, it may not be possible to sell assets at all or it may only be possible to do so at steep discounts. In such circumstances we may be forced to either take on additional risk or to incur losses in order to decrease our VaR. In addition, increases in volatility increase the level of our RWAs and increase our capital requirements, both of which in turn increase our funding costs.

Our investment banking, client execution and investment management businesses have been adversely affected and may continue to be adversely affected by market uncertainty or lack of confidence among investors and CEOs due to general declines in economic activity and other unfavorable economic, geopolitical or market conditions.

Our investment banking business has been and may continue to be adversely affected by market conditions. Poor economic conditions and other adverse geopolitical conditions, as well as uncertainty relating to the U.S. debt ceiling and the continued funding of the U.S. government, can adversely affect and have adversely affected investor and CEO confidence, resulting in significant industry-wide declines in the size and number of underwritings and of financial advisory transactions, which could have an adverse effect on our revenues and our profit margins. In particular, because a significant portion of our investment banking revenues is derived from our participation in large transactions, a decline in the number of large transactions would adversely affect our investment banking business.

In certain circumstances, market uncertainty or general declines in market or economic activity may affect our client execution businesses by decreasing levels of overall activity or by decreasing volatility, but at other times market uncertainty and even declining economic activity may result in higher trading volumes or higher spreads or both.

Market uncertainty, volatility and adverse economic conditions, as well as declines in asset values, may cause our clients to transfer their assets out of our funds or other products or their brokerage accounts and result in reduced net revenues, principally in our investment management business. To the extent that clients do not withdraw their funds, they may invest them in products that generate less fee income.

26 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Our investment management business may be affected by the poor investment performance of our investment products.

Poor investment returns in our investment management business, due to either general market conditions or underperformance (relative to our competitors or to benchmarks) by funds or accounts that we manage or investment products that we design or sell, affects our ability to retain existing assets and to attract new clients or additional assets from existing clients. This could affect the management and incentive fees that we earn on assets under supervision or the commissions and net spreads that we earn for selling other investment products, such as structured notes or derivatives.

We may incur losses as a result of ineffective risk management processes and strategies.

We seek to monitor and control our risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. Our risk management process seeks to balance our ability to profit from market-making, investing or lending positions with our exposure to potential losses. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes. Thus, we may, in the course of our activities, incur losses. Market conditions in recent years have involved unprecedented dislocations and highlight the limitations inherent in using historical data to manage risk.

The models that we use to assess and control our risk exposures reflect assumptions about the degrees of correlation or lack thereof among prices of various asset classes or other market indicators. In times of market stress or other unforeseen circumstances, such as occurred during 2008 and early 2009, and to some extent since 2011,

previously uncorrelated indicators may become correlated, or conversely previously correlated indicators may move in different directions. These types of market movements have at times limited the effectiveness of our hedging strategies and have caused us to incur significant losses, and they may do so in the future. These changes in correlation can be exacerbated where other market participants are using risk or trading models with assumptions or algorithms that are similar to ours. In these and other cases, it may be difficult to reduce our risk positions due to the activity of other market participants or widespread market dislocations, including circumstances where asset values are declining significantly or no market exists for certain assets.

To the extent that we have positions through our market-making or origination activities or we make investments directly through our investing activities, including private equity, that do not have an established liquid trading market or are otherwise subject to restrictions on sale or hedging, we may not be able to reduce our positions and therefore reduce our risk associated with such positions. In addition, to the extent permitted by applicable law and regulation, we invest our own capital in private equity, credit, real estate and hedge funds that we manage and limitations on our ability to withdraw some or all of our investments in these funds, whether for legal, reputational or other reasons, may make it more difficult for us to control the risk exposures relating to these investments.

Prudent risk management, as well as regulatory restrictions, may cause us to limit our exposure to counterparties, geographic areas or markets, which may limit our business opportunities and increase the cost of our funding or hedging activities.

For a further discussion of our risk management policies and procedures, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management and Risk Factors" in Part II, Item 7 of the 2013 Form 10-K.

Goldman Sachs 2013 Form 10-K 27
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Our liquidity, profitability and businesses may be adversely affected by an inability to access the debt capital markets or to sell assets or by a reduction in our credit ratings or by an increase in our credit spreads.

Liquidity is essential to our businesses. Our liquidity may be impaired by an inability to access secured and/or unsecured debt markets, an inability to access funds from our subsidiaries, an inability to sell assets or redeem our investments, or unforeseen outflows of cash or collateral. This situation may arise due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects third parties or us, or even by the perception among market participants that we, or other market participants, are experiencing greater liquidity risk.

The financial instruments that we hold and the contracts to which we are a party are often complex, as we employ structured products to benefit our clients and hedge our own risks, and these complex structured products often do not have readily available markets to access in times of liquidity stress. Our investing and lending activities may lead to situations where the holdings from these activities represent a significant portion of specific markets, which could restrict liquidity for our positions.

Further, our ability to sell assets may be impaired if other market participants are seeking to sell similar assets at the same time, as is likely to occur in a liquidity or other market crisis. In addition, financial institutions with which we interact may exercise set-off rights or the right to require additional collateral, including in difficult market conditions, which could further impair our access to liquidity.

Our credit ratings are important to our liquidity. A reduction in our credit ratings could adversely affect our liquidity and competitive position, increase our borrowing costs, limit our access to the capital markets or trigger our obligations under certain provisions in some of our trading and collateralized financing contracts. Under these provisions, counterparties could be permitted to terminate contracts with Goldman

Sachs or require us to post additional collateral. Termination of our trading and collateralized financing contracts could cause us to sustain losses and impair our liquidity by requiring us to find other sources of financing or to make significant cash payments or securities movements. Certain rating agencies have indicated that the Dodd-Frank Act could result in the rating agencies reducing their assumed level of government support and therefore result in ratings downgrades for certain large financial institutions, including Goldman Sachs. As of December 2013, each of Standard & Poor's Ratings Services and Ratings and Investment Information, Inc. had issued a negative outlook on our long-term credit ratings. As of December 2013, in the event of a one-notch and two-notch downgrade of our credit ratings our counterparties could have called for additional collateral or termination payments related to our net derivative liabilities under bilateral agreements in an aggregate amount of $911 million and $2.99 billion, respectively. A downgrade by any one rating agency, depending on the agency's relative ratings of the firm at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies. For a further discussion of our credit ratings, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity Risk Management - Credit Ratings" in Part II, Item 7 of the 2013 Form 10-K.

Our cost of obtaining long-term unsecured funding is directly related to our credit spreads (the amount in excess of the interest rate of U.S. Treasury securities (or other benchmark securities) of the same maturity that we need to pay to our debt investors). Increases in our credit spreads can significantly increase our cost of this funding. Changes in credit spreads are continuous, market-driven, and subject at times to unpredictable and highly volatile movements. Our credit spreads are also influenced by market perceptions of our creditworthiness. In addition, our credit spreads may be influenced by movements in the costs to purchasers of credit default swaps referenced to our long-term debt. The market for credit default swaps, although very large, has proven to be extremely volatile and at times may lack a high degree of structure or transparency.

28 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Conflicts of interest are increasing and a failure to appropriately identify and address conflicts of interest could adversely affect our businesses.

Due to the broad scope of our businesses and our client base, we regularly address potential conflicts of interest, including situations where our services to a particular client or our own investments or other interests conflict, or are perceived to conflict, with the interests of another client, as well as situations where one or more of our businesses have access to material non-public information that may not be shared with other businesses within the firm and situations where we may be a creditor of an entity with which we also have an advisory or other relationship.

In addition, our status as a bank holding company subjects us to heightened regulation and increased regulatory scrutiny by the Federal Reserve Board with respect to transactions between GS Bank USA and entities that are or could be viewed as affiliates of ours.

We have extensive procedures and controls that are designed to identify and address conflicts of interest, including those designed to prevent the improper sharing of information among our businesses. However, appropriately identifying and dealing with conflicts of interest is complex and difficult, and our reputation, which is one of our most important assets, could be damaged and the willingness of clients to enter into transactions with us may be affected if we fail, or appear to fail, to identify, disclose and deal appropriately with conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or regulatory enforcement actions.

Group Inc. is a holding company and is dependent for liquidity on payments from its subsidiaries, many of which are subject to restrictions.

Group Inc. is a holding company and, therefore, depends on dividends, distributions and other payments from its subsidiaries to fund dividend payments and to fund all payments on its obligations, including debt obligations. Many of our subsidiaries, including our broker-dealer and

bank subsidiaries, are subject to laws that restrict dividend payments or authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to Group Inc. In addition, our broker-dealer and bank subsidiaries are subject to restrictions on their ability to lend or transact with affiliates and to minimum regulatory capital requirements, as well as restrictions on their ability to use funds deposited with them in brokerage or bank accounts to fund their businesses. Additional restrictions on related-party transactions, increased capital and liquidity requirements and additional limitations on the use of funds on deposit in bank or brokerage accounts, as well as lower earnings, can reduce the amount of funds available to meet the obligations of Group Inc., including under the Federal Reserve Board's source of strength policy, and even require Group Inc. to provide additional funding to such subsidiaries. Restrictions or regulatory action of that kind could impede access to funds that Group Inc. needs to make payments on its obligations, including debt obligations, or dividend payments. In addition, Group Inc.'s right to participate in a distribution of assets upon a subsidiary's liquidation or reorganization is subject to the prior claims of the subsidiary's creditors.

As a result of the 2008 financial crisis, there has been a trend towards increased regulation and supervision of our subsidiaries by the governments and regulators in the countries in which those subsidiaries are located or do business. Concerns about protecting clients and creditors of financial institutions that are controlled by persons or entities located outside of the country in which such entities are located or do business have caused or may cause a number of governments and regulators to take additional steps to "ring fence" such entities in order to protect clients and creditors of such entities in the event of financial difficulties involving such entities. The result has been and may continue to be additional limitations on our ability to efficiently move capital and liquidity among our affiliated entities, thereby increasing the overall level of capital and liquidity required by the firm on a consolidated basis.

Goldman Sachs 2013 Form 10-K 29
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Furthermore, Group Inc. has guaranteed the payment obligations of certain of its subsidiaries, including GS&Co., GS Bank USA and GSEC subject to certain exceptions, and has pledged significant assets to GS Bank USA to support obligations to GS Bank USA. In addition, Group Inc. guarantees many of the obligations of its other consolidated subsidiaries on a transaction-by-transaction basis, as negotiated with counterparties. These guarantees may require Group Inc. to provide substantial funds or assets to its subsidiaries or their creditors or counterparties at a time when Group Inc. is in need of liquidity to fund its own obligations.

The requirements for Group Inc. and GS Bank USA to develop and submit recovery and resolution plans to regulators, and the incorporation of feedback received from regulators, may require us to increase capital or liquidity levels at particular subsidiaries or otherwise incur additional or duplicative operational or other costs at multiple entities, and may reduce our ability to provide Group Inc. guarantees of the obligations of our subsidiaries or raise debt at Group Inc. Resolution planning may also impair our ability to structure our intercompany and external activities in a manner that we may otherwise deem most operationally efficient. Furthermore, we may incur additional taxes. Any such limitations or requirements would be in addition to the legal and regulatory restrictions discussed above on our ability to engage in capital actions or make intercompany dividends or payments.

See "Business - Regulation" in Part I, Item 1 of the 2013 Form 10-K for a further discussion of regulatory restrictions.

Our businesses, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold.

We are exposed to the risk that third parties that owe us money, securities or other assets will not perform their obligations. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. A failure of a significant market participant, or even concerns about a default by such an institution, could lead to significant liquidity problems, losses or defaults by other institutions, which in turn could adversely affect us.

We are also subject to the risk that our rights against third parties may not be enforceable in all circumstances. In addition, deterioration in the credit quality of third parties whose securities or obligations we hold, including a deterioration in the value of collateral posted by third parties to secure their obligations to us under derivatives contracts and loan agreements, could result in losses and/or adversely affect our ability to rehypothecate or otherwise use those securities or obligations for liquidity purposes. A significant downgrade in the credit ratings of our counterparties could also have a negative impact on our results. While in many cases we are permitted to require additional collateral from counterparties that experience financial difficulty, disputes may arise as to the amount of collateral we are entitled to receive and the value of pledged assets. The termination of contracts and the foreclosure on collateral may subject us to claims for the improper exercise of our rights. Default rates, downgrades and disputes with counterparties as to the valuation of collateral increase significantly in times of market stress and illiquidity.

As part of our clearing and prime brokerage activities, we finance our clients' positions, and we could be held responsible for the defaults or misconduct of our clients. Although we regularly review credit exposures to specific clients and counterparties and to specific industries, countries and regions that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect or foresee.

30 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Concentration of risk increases the potential for significant losses in our market-making, underwriting, investing and lending activities.

Concentration of risk increases the potential for significant losses in our market-making, underwriting, investing and lending activities. The number and size of such transactions may affect our results of operations in a given period. Moreover, because of concentration of risk, we may suffer losses even when economic and market conditions are generally favorable for our competitors. Disruptions in the credit markets can make it difficult to hedge these credit exposures effectively or economically. In addition, we extend large commitments as part of our credit origination activities. The Dodd-Frank Act will require issuers of asset-backed securities and any person who organizes and initiates an asset-backed securities transaction to retain economic exposure to the asset, which could significantly increase the cost to us of engaging in securitization activities. Our inability to reduce our credit risk by selling, syndicating or securitizing these positions, including during periods of market stress, could negatively affect our results of operations due to a decrease in the fair value of the positions, including due to the insolvency or bankruptcy of the borrower, as well as the loss of revenues associated with selling such securities or loans.

In the ordinary course of business, we may be subject to a concentration of credit risk to a particular counterparty, borrower, issuer, including sovereign issuers, or geographic area or group of related countries, such as the EU, and a failure or downgrade of, or default by, such entity could negatively impact our businesses, perhaps materially, and the systems by which we set limits and monitor the level of our credit exposure to individual entities, industries and countries may not function as we have anticipated. While our activities expose us to many different industries, counterparties and countries, we routinely execute a high volume of transactions with counterparties engaged in financial services activities, including brokers and dealers, commercial banks, clearing houses, exchanges and investment funds. This has resulted in significant credit concentration with respect to these counterparties. Provisions of the Dodd-Frank Act are expected to lead to increased centralization of trading activity through particular clearing houses, central agents or exchanges, which may increase our concentration of risk with respect to these entities.

The financial services industry is both highly competitive and interrelated.

The financial services industry and all of our businesses are intensely competitive, and we expect them to remain so. We compete on the basis of a number of factors, including transaction execution, our products and services, innovation, reputation, creditworthiness and price. Over time, there has been substantial consolidation and convergence among companies in the financial services industry. This trend accelerated over recent years as a result of numerous mergers and asset acquisitions among industry participants. This trend has also hastened the globalization of the securities and other financial services markets. As a result, we have had to commit capital to support our international operations and to execute large global transactions. To the extent we expand into new business areas and new geographic regions, we will face competitors with more experience and more established relationships with clients, regulators and industry participants in the relevant market, which could adversely affect our ability to expand. Governments and regulators have recently adopted regulations, imposed taxes or otherwise put forward various proposals that have or may impact our ability to conduct certain of our businesses in a cost-effective manner or at all in certain or all jurisdictions, including proposals relating to restrictions on the type of activities in which financial institutions are permitted to engage. These or other similar rules, many of which do not apply to all our U.S. or non-U.S. competitors, could impact our ability to compete effectively.

Pricing and other competitive pressures in our businesses have continued to increase, particularly in situations where some of our competitors may seek to increase market share by reducing prices. For example, in connection with investment banking and other assignments, we have experienced pressure to extend and price credit at levels that may not always fully compensate us for the risks we take.

Goldman Sachs 2013 Form 10-K 31
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

The financial services industry is highly interrelated in that a very significant volume of transactions occur among members of that industry. Many transactions are syndicated to other financial institutions and financial institutions are often counterparties in transactions. This has led to claims by other market participants and regulators that such institutions have colluded in order to manipulate markets or market prices, including allegations that antitrust laws have been violated. While we have extensive procedures and controls that are designed to identify and prevent such activities, allegations of such activities, particularly by regulators, can have a very negative reputational impact and, if we are found to have engaged in such activities, subject us to large fines and settlements, and potentially very significant penalties, including treble damages.

We face enhanced risks as new business initiatives lead us to transact with a broader array of clients and counterparties and expose us to new asset classes and new markets.

A number of our recent and planned business initiatives and expansions of existing businesses may bring us into contact, directly or indirectly, with individuals and entities that are not within our traditional client and counterparty base and expose us to new asset classes and new markets. For example, we continue to transact business and invest in new regions, including a wide range of emerging and growth markets. Furthermore, in a number of our businesses, including where we make markets, invest and lend, we directly or indirectly own interests in, or otherwise become affiliated with the ownership and operation of public services, such as airports, toll roads and shipping ports, as well as physical commodities, mines, commodity warehouses and other commodities infrastructure components, both within and outside the United States. Deteriorating market conditions may lead to an increase in opportunities to acquire distressed assets and we may determine opportunistically to increase our exposure to these types of assets.

These activities expose us to new and enhanced risks, including risks associated with dealing with governmental entities, reputational concerns arising from dealing with less sophisticated counterparties and investors, greater regulatory scrutiny of these activities, increased credit-related, market, sovereign and operational risks, risks arising from accidents or acts of terrorism, and reputational concerns with the manner in which these assets are being operated or held.

Derivative transactions and delayed settlements may expose us to unexpected risk and potential losses.

We are party to a large number of derivative transactions, including credit derivatives. Many of these derivative instruments are individually negotiated and non-standardized, which can make exiting, transferring or settling positions difficult. Many credit derivatives require that we deliver to the counterparty the underlying security, loan or other obligation in order to receive payment. In a number of cases, we do not hold the underlying security, loan or other obligation and may not be able to obtain the underlying security, loan or other obligation. This could cause us to forfeit the payments due to us under these contracts or result in settlement delays with the attendant credit and operational risk as well as increased costs to the firm. Derivative transactions may also involve the risk that documentation has not been properly executed, that executed agreements may not be enforceable against the counterparty, or that obligations under such agreements may not be able to be "netted" against other obligations with such counterparty. In addition, counterparties may claim that such transactions were not appropriate or authorized.

Derivative contracts and other transactions, including secondary bank loan purchases and sales, entered into with third parties are not always confirmed by the counterparties or settled on a timely basis. While the transaction remains unconfirmed or during any delay in settlement, we are subject to heightened credit and operational risk and in the event of a default may find it more difficult to enforce our rights. In addition, as new and more complex derivative products are created, covering a wider array of underlying credit and other instruments, disputes about the terms of the underlying contracts could arise, which could impair our ability to effectively manage our risk exposures from these products and subject us to increased costs. The provisions of the Dodd-Frank Act requiring central clearing of credit derivatives and other OTC derivatives, or a market shift toward standardized derivatives, could reduce the risk associated with such transactions, but under certain circumstances could also limit our ability to develop derivatives that best suit the needs of our clients and to hedge our own risks, and could adversely affect our profitability and increase our credit exposure to such platform.

32 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Our businesses may be adversely affected if we are unable to hire and retain qualified employees.

Our performance is largely dependent on the talents and efforts of highly skilled individuals; therefore, our continued ability to compete effectively in our businesses, to manage our businesses effectively and to expand into new businesses and geographic areas depends on our ability to attract new talented and diverse employees and to retain and motivate our existing employees. Factors that affect our ability to attract and retain such employees include our compensation and benefits, and our reputation as a successful business with a culture of fairly hiring, training and promoting qualified employees.

Competition from within the financial services industry and from businesses outside the financial services industry for qualified employees has often been intense. This is particularly the case in emerging and growth markets, where we are often competing for qualified employees with entities that have a significantly greater presence or more extensive experience in the region.

Changes in law or regulation in jurisdictions in which our operations are located that affect taxes on our employees' income, or the amount or composition of compensation, may also adversely affect our ability to hire and retain qualified employees in those jurisdictions.

As described further in "Business - Regulation - Banking Regulation" and "Regulation - Compensation Practices" in Part I, Item 1 of the 2013 Form 10-K, our compensation practices are subject to review by, and the standards of, the Federal Reserve Board. As a large financial and banking institution, we are subject to limitations on compensation practices (which may or may not affect our competitors) by the Federal Reserve Board, the PRA, the FCA, the FDIC or other regulators worldwide. These limitations, including any imposed by or as a result of future legislation or regulation, may require us to alter our compensation practices in ways that could adversely affect our ability to attract and retain talented employees.

Our businesses and those of our clients are subject to extensive and pervasive regulation around the world.

As a participant in the financial services industry and a systemically important financial institution, we are subject to extensive regulation in jurisdictions around the world. We face the risk of significant intervention by regulatory and taxing authorities in all jurisdictions in which we conduct our businesses. Among other things, as a result of regulators or private parties challenging our compliance with existing laws and regulations, we could be fined, prohibited from engaging in some of our business activities, subject to limitations or conditions on our business activities or subjected to new or substantially higher taxes or other governmental charges in connection with the conduct of our business or with respect to our employees. In many cases, our activities may be subject to overlapping and divergent regulation in different jurisdictions.

There is also the risk that new laws or regulations or changes in enforcement of existing laws or regulations applicable to our businesses or those of our clients, including capital, liquidity, leverage and margin requirements, restrictions on leveraged lending or other business practices, reporting requirements, tax burdens and compensation restrictions, could be imposed on a limited subset of financial institutions (either based on size, activities, geography or other criteria), which may adversely affect our ability to compete effectively with other institutions that are not affected in the same way. In addition, regulation imposed on financial institutions or market participants generally, such as taxes on financial transactions, could adversely impact levels of market activity more broadly, and thus impact our businesses.

These developments could impact our profitability in the affected jurisdictions, or even make it uneconomic for us to continue to conduct all or certain of our businesses in such jurisdictions, or could cause us to incur significant costs associated with changing our business practices, restructuring our businesses, moving all or certain of our businesses and our employees to other locations or complying with applicable capital requirements, including liquidating assets or raising capital in a manner that adversely increases our funding costs or otherwise adversely affects our shareholders and creditors.

Goldman Sachs 2013 Form 10-K 33
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

U.S. and non-U.S. regulatory developments, in particular the Dodd-Frank Act and Basel III, have significantly altered the regulatory framework within which we operate and may adversely affect our competitive position and profitability. As discussed further under "Business - Regulation" in Part I, Item 1 of the 2013 Form 10-K, in December 2013, final rules were adopted to implement the provisions of the Dodd-Frank Act referred to as the "Volcker Rule," which will prohibit proprietary trading and will limit our sponsorship of, and investment in, covered funds. Based on what we know as of the date of this filing, we do not expect the impact of the prohibition on proprietary trading to be material to our financial condition, results of operations or cash flows. However, given that the rule is highly complex, and its full impact will not be known until market practices are fully developed, the implementation of the rule and the related market changes could negatively impact our businesses and expose us to increased liability for inadvertent breaches and reporting failures. Among the other aspects of the Dodd-Frank Act most likely to affect our businesses are: increased capital, liquidity and reporting requirements; increased regulation of and restrictions on OTC derivatives markets and transactions; limitations on incentive compensation; the prohibition on engaging in certain swaps-based activities through an insured depository institution; limitations on affiliate transactions; requirements to reorganize or limit activities in connection with recovery and resolution plans; increased deposit insurance assessments; and increased standards of care for broker-dealers in dealing with clients. The implementation of higher capital requirements, the liquidity coverage ratio and the net stable funding ratio under Basel III may also adversely affect our profitability and competitive position, particularly if the requirements do not apply, or do not apply equally, to our competitors or are not implemented uniformly across jurisdictions.

In addition, the attorneys general of a number of states have filed lawsuits against financial institutions alleging, among other things, that the centralized system of recording mortgages and designating a common entity as the mortgage holder is in violation of state law, and other authorities have brought similar actions or indicated that they are contemplating bringing such actions. If this system and related practices are deemed invalid, it may call into question the validity or enforceability of certain mortgage-related obligations under securitizations and other transactions in which we have participated, negatively impact the market for mortgages and mortgage-related products and our mortgage-related activities, or subject us to additional costs or penalties.

Increasingly, regulators and courts have sought to hold financial institutions liable for the misconduct of their clients where such regulators and courts have determined that the financial institution should have detected that the client was engaged in wrongdoing, even though the financial institution had no direct knowledge of the activities engaged in by its client. Regulators and courts have also increasingly found liability as a "control person" for activities of entities in which financial institutions or funds controlled by financial institutions have an investment, but which they do not actively manage. In addition, regulators and courts continue to seek to establish "fiduciary" obligations to counterparties to which no such duty had been assumed to exist. To the extent that such efforts are successful, the cost of, and liabilities associated with, engaging in brokerage, clearing, market-making, prime brokerage, investing and other similar activities could increase significantly.

For a discussion of the extensive regulation to which our businesses are subject, see "Business - Regulation" in Part I, Item 1 of the 2013 Form 10-K.

34 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

We may be adversely affected by increased governmental and regulatory scrutiny or negative publicity.

Governmental scrutiny from regulators, legislative bodies and law enforcement agencies with respect to matters relating to compensation, our business practices, our past actions and other matters has increased dramatically in the past several years. The financial crisis and the current political and public sentiment regarding financial institutions has resulted in a significant amount of adverse press coverage, as well as adverse statements or charges by regulators or other government officials. Press coverage and other public statements that assert some form of wrongdoing often result in some type of investigation by regulators, legislators and law enforcement officials or in lawsuits. Responding to these investigations and lawsuits, regardless of the ultimate outcome of the proceeding, is time-consuming and expensive and can divert the time and effort of our senior management from our business. Penalties and fines sought by regulatory authorities have increased substantially over the last several years, and certain regulators have been more likely in recent years to commence enforcement actions or to advance or support legislation targeted at the financial services industry. Adverse publicity, governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations. Certain regulators, including the SEC, have announced policies that make it more likely that they will seek an admission of wrongdoing as part of any settlement of a matter brought by them against a regulated entity or individual, which could lead to increased exposure to civil litigation and could adversely affect our reputation and ability to do business in certain jurisdictions with so-called "bad actor" disqualification laws and could have other negative effects.

A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our businesses, result in the disclosure of confidential information, damage our reputation and cause losses.

Our businesses are highly dependent on our ability to process and monitor, on a daily basis, a very large number of transactions, many of which are highly complex and occur at very high volumes and frequencies, across numerous and diverse markets in many currencies. These transactions, as well as the information technology services we provide to clients, often must adhere to client-specific guidelines, as well as legal and regulatory standards.

As our client base, and our geographical reach expands, and the volume, speed, frequency and complexity of transactions, especially electronic transactions (as well as the requirements to report such transactions on a real-time basis to clients, regulators and exchanges) increases, developing and maintaining our operational systems and infrastructure becomes more challenging, and the risk of systems or human error in connection with such transactions increases. Our financial, accounting, data processing or other operational systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, such as a spike in transaction volume, adversely affecting our ability to process these transactions or provide these services. We must continuously update these systems to support our operations and growth and to respond to changes in regulations and markets, and invest heavily in systemic controls and training to ensure that such transactions do not violate applicable rules and regulations or, due to errors in processing such transactions, adversely affect markets, our clients and counterparties or the firm.

Systems enhancements and updates, as well as the requisite training, entail significant costs and create risks associated with implementing new systems and integrating them with existing ones.

Goldman Sachs 2013 Form 10-K 35
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

In addition, we also face the risk of operational failure, termination or capacity constraints of any of the clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities and derivatives transactions, and as our interconnectivity with our clients grows, we increasingly face the risk of operational failure with respect to our clients' systems.

In recent years, there has been significant consolidation among clearing agents, exchanges and clearing houses and an increasing number of derivative transactions are now or in the near future will be cleared on exchanges, which has increased our exposure to operational failure, termination or capacity constraints of the particular financial intermediaries that we use and could affect our ability to find adequate and cost-effective alternatives in the event of any such failure, termination or constraint. Industry consolidation, whether among market participants or financial intermediaries, increases the risk of operational failure as disparate complex systems need to be integrated, often on an accelerated basis.

Furthermore, the interconnectivity of multiple financial institutions with central agents, exchanges and clearing houses, and the increased centrality of these entities, increases the risk that an operational failure at one institution or entity may cause an industry-wide operational failure that could materially impact our ability to conduct business. Any such failure, termination or constraint could adversely affect our ability to effect transactions, service our clients, manage our exposure to risk or expand our businesses or result in financial loss or liability to our clients, impairment of our liquidity, disruption of our businesses, regulatory intervention or reputational damage.

Despite the resiliency plans and facilities we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which we are located. This may include a disruption involving electrical, satellite, undersea cable or other communications, internet, transportation or other services facilities used by us or third parties with which we conduct business. These disruptions may occur as a result of events that affect only our buildings or systems or those of such third parties, or as a result of events with a broader impact globally, regionally or in the cities where those buildings or systems are located, including, but not limited, to natural disasters, war, civil unrest, economic or political developments, pandemics and weather events.

Nearly all of our employees in our primary locations, including the New York metropolitan area, London, Bangalore, Hong Kong, Tokyo and Salt Lake City, work in close proximity to one another, in one or more buildings. Notwithstanding our efforts to maintain business continuity, given that our headquarters and the largest concentration of our employees are in the New York metropolitan area and our two principal office buildings in the New York area both are located on the waterfront of the Hudson River, depending on the intensity and longevity of the event, a catastrophic event impacting our New York metropolitan area offices, including a terrorist attack, extreme weather event or other hostile or catastrophic event, could very negatively affect our business. If a disruption occurs in one location and our employees in that location are unable to occupy our offices or communicate with or travel to other locations, our ability to service and interact with our clients may suffer, and we may not be able to successfully implement contingency plans that depend on communication or travel.

36 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. We are regularly the target of attempted cyber attacks, including denial-of-service attacks, and must continuously monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption. Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, misuse, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize our or our clients' or counterparties' confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients', our counterparties' or third parties' operations, which could impact their ability to transact with us or otherwise result in significant losses or reputational damage. The increased use of mobile and cloud technologies can heighten these and other operational risks. We expect to expend significant additional resources on an ongoing basis to modify our protective measures and to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

We routinely transmit and receive personal, confidential and proprietary information by email and other electronic means. We have discussed and worked with clients, vendors, service providers, counterparties and other third parties to develop secure transmission capabilities and protect against cyber attacks, but we do not have, and may be unable to put in place, secure capabilities with all of our clients, vendors, service providers, counterparties and other third parties and we may not be able to ensure that these third parties have appropriate controls in place to protect the confidentiality of the information. An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a client, vendor, service provider, counterparty or other third party could result in legal liability, regulatory action and reputational harm.

Substantial legal liability or significant regulatory action against us could have material adverse financial effects or cause us significant reputational harm, which in turn could seriously harm our business prospects.

We face significant legal risks in our businesses, and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remain high. See Note 27 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for a discussion of certain legal proceedings in which we are involved and Note 18 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for information regarding certain mortgage-related contingencies. Our experience has been that legal claims by customers and clients increase in a market downturn and that employment-related claims increase following periods in which we have reduced our staff. Additionally, governmental entities are plaintiffs in certain of the legal proceedings in which we are involved, and we may face future actions or claims by the same or other governmental entities. Recently, significant settlements by several large financial institutions with governmental entities have been publicly announced. The trend of large settlements with governmental entities may adversely affect the outcomes for other financial institutions in similar actions, especially where governmental officials have announced that the large settlements will be used as the basis or a template for other settlements.

Goldman Sachs 2013 Form 10-K 37
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

The growth of electronic trading and the introduction of new trading technology may adversely affect our business and may increase competition.

Technology is fundamental to our business and our industry. The growth of electronic trading and the introduction of new technologies is changing our businesses and presenting us with new challenges. Securities, futures and options transactions are increasingly occurring electronically, both on our own systems and through other alternative trading systems, and it appears that the trend toward alternative trading systems will continue and probably accelerate. Some of these alternative trading systems compete with us, particularly our exchange-based market-making activities, and we may experience continued competitive pressures in these and other areas. In addition, the increased use by our clients of low-cost electronic trading systems and direct electronic access to trading markets could cause a reduction in commissions and spreads. As our clients increasingly use our systems to trade directly in the markets, we may incur liabilities as a result of their use of our order routing and execution infrastructure. We have invested significant resources into the development of electronic trading systems and expect to continue to do so, but there is no assurance that the revenues generated by these systems will yield an adequate return on our investment, particularly given the relatively lower commissions arising from electronic trades.

Our commodities activities, particularly our physical commodities activities, subject us to extensive regulation, potential catastrophic events and environmental, reputational and other risks that may expose us to significant liabilities and costs.

We engage in, or invest in entities that engage in, the production, storage, transportation, marketing and trading of numerous commodities, including crude oil, oil products, natural gas, electric power, agricultural products, metals (base and precious), minerals (including uranium), emission credits, coal, freight, liquefied natural gas and related products and indices. These activities subject us to extensive and evolving federal, state and local energy, environmental, antitrust and other governmental laws and regulations worldwide, including environmental laws and regulations relating to, among others, air quality, water quality, waste management, transportation of hazardous substances, natural resources, site remediation and health and safety. Additionally, rising climate change concerns may lead to additional regulation that could increase the operating costs and profitability of our investments.

We may incur substantial costs in complying with current or future laws and regulations relating to our commodities-related activities and investments, particularly transportation and storage of physical commodities and wholesale sales and trading of electricity and natural gas. Compliance with these laws and regulations could require us to commit significant capital toward environmental monitoring, renovation of storage facilities or transport vessels, payment of emission fees and carbon or other taxes, and application for, and holding of, permits and licenses.

Our commodities-related activities are also subject to the risk of unforeseen or catastrophic events, many of which are outside of our control, including breakdown or failure of transport vessels, storage facilities or other equipment or processes or other mechanical malfunctions, fires, leaks, spills or release of hazardous substances, performance below expected levels of output or efficiency, terrorist attacks, extreme weather events or other natural disasters or other hostile or catastrophic events. In addition, we rely on third-party suppliers or service providers to perform their contractual obligations and any failure on their part, including the failure to obtain raw materials at reasonable prices or to safely transport or store commodities, could adversely affect our activities. Also, we may not be able to obtain insurance to cover some of these risks and the insurance that we have may be inadequate to cover our losses.

The occurrence of any of such events may prevent us from performing under our agreements with clients, may impair our operations or financial results and may result in litigation, regulatory action, negative publicity or other reputational harm.

We may also be required to divest or discontinue certain of these activities for regulatory or legal reasons. If that occurs, the firm may receive a value that is less than the then carrying value, as the firm may be unable to exit these activities in an orderly transaction.

38 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

In conducting our businesses around the world, we are subject to political, economic, legal, operational and other risks that are inherent in operating in many countries.

In conducting our businesses and maintaining and supporting our global operations, we are subject to risks of possible nationalization, expropriation, price controls, capital controls, exchange controls and other restrictive governmental actions, as well as the outbreak of hostilities or acts of terrorism. In many countries, the laws and regulations applicable to the securities and financial services industries and many of the transactions in which we are involved are uncertain and evolving, and it may be difficult for us to determine the exact requirements of local laws in every market. Any determination by local regulators that we have not acted in compliance with the application of local laws in a particular market or our failure to develop effective working relationships with local regulators could have a significant and negative effect not only on our businesses in that market but also on our reputation generally. We are also subject to the enhanced risk that transactions we structure might not be legally enforceable in all cases.

Our businesses and operations are increasingly expanding into new regions throughout the world, including emerging and growth markets, and we expect this trend to continue. Various emerging and growth market countries have experienced severe economic and financial disruptions, including significant devaluations of their currencies, defaults or threatened defaults on sovereign debt, capital and currency exchange controls, and low or negative growth rates in their economies, as well as military activity, civil unrest or acts of terrorism. The possible effects of any of these conditions include an adverse impact on our businesses and increased volatility in financial markets generally.

While business and other practices throughout the world differ, our principal legal entities are subject in their operations worldwide to rules and regulations relating to corrupt and illegal payments and money laundering, as well as laws relating to doing business with certain individuals, groups and countries, such as the U.S. Foreign Corrupt Practices Act, the USA PATRIOT Act and U.K. Bribery Act. While we have invested and continue to invest significant resources in training and in compliance monitoring, the geographical diversity of our operations, employees, clients and customers, as well as the vendors and other third parties that we deal with, greatly increases the risk that we may be found in violation of such rules or regulations and any such violation could subject us to significant penalties or adversely affect our reputation.

In addition, there have been a number of highly publicized cases around the world, involving actual or alleged fraud or other misconduct by employees in the financial services industry in recent years, and we run the risk that employee misconduct could occur. This misconduct has included and may include in the future the theft of proprietary information, including proprietary software. It is not always possible to deter or prevent employee misconduct and the precautions we take to prevent and detect this activity have not been and may not be effective in all cases.

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters.

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to manage our businesses.

Goldman Sachs 2013 Form 10-K 39
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Item 1B.    Unresolved Staff Comments

There are no material unresolved written comments that were received from the SEC staff 180 days or more before the end of our fiscal year relating to our periodic or current reports under the Exchange Act.

Item 2.    Properties

Our principal executive offices are located at 200 West Street, New York, New York and comprise approximately 2.1 million gross square feet. The building is located on a parcel leased from Battery Park City Authority pursuant to a ground lease. Under the lease, Battery Park City Authority holds title to all improvements, including the office building, subject to Goldman Sachs' right of exclusive possession and use until June 2069, the expiration date of the lease. Under the terms of the ground lease, we made a lump sum ground rent payment in June 2007 of $161 million for rent through the term of the lease.

We have offices at 30 Hudson Street in Jersey City, New Jersey, which we own and which include approximately 1.6 million gross square feet of office space, and we own over 700,000 square feet of additional commercial space spread among four locations in New York and New Jersey.

We have additional offices in the United States and elsewhere in the Americas, which together comprise approximately 2.1 million rentable square feet of leased space.

In Europe, the Middle East and Africa, we have offices that total approximately 1.9 million rentable square feet of leased and owned space. Our European headquarters is located in London at Peterborough Court, pursuant to a lease expiring in 2026. In total, we have offices with approximately 1.4 million rentable square feet in London, relating to various properties.

In Asia (including India), Australia and New Zealand, we have offices with approximately 2.0 million rentable square feet. Our headquarters in this region are in Tokyo, at the Roppongi Hills Mori Tower, and in Hong Kong, at the Cheung Kong Center. In Tokyo, we currently have offices with approximately 390,000 rentable square feet, the majority of which have leases that will expire in 2018. In Hong Kong, we currently have offices with approximately 340,000 rentable square feet, the majority of which have leases that will expire in 2017.

See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Off-Balance-Sheet Arrangements and Contractual Obligations - Contractual Obligations" in Part II, Item 7 of the 2013 Form 10-K for a discussion of exit costs we may incur in the future to the extent we (i) reduce our space capacity or (ii) commit to, or occupy, new properties in the locations in which we operate and, consequently, dispose of existing space that had been held for potential growth.

Item 3.    Legal Proceedings

We are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Many of these proceedings are in early stages, and many of these cases seek an indeterminate amount of damages. However, we believe, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition, but may be material to our operating results for any particular period, depending, in part, upon the operating results for such period. Given the range of litigation and investigations presently under way, our litigation expenses can be expected to remain high. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Use of Estimates" in Part II, Item 7 of the 2013 Form 10-K. See Note 27 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for information on certain judicial, regulatory and legal proceedings.

Item 4.    Mine Safety Disclosures

Not applicable.

40 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Executive Officers of The Goldman Sachs Group, Inc.

Set forth below are the name, age, present title, principal occupation and certain biographical information for our executive officers. All of our executive officers have been appointed by and serve at the pleasure of our board of directors.

Lloyd C. Blankfein, 59

Mr. Blankfein has been our Chairman and Chief Executive Officer since June 2006, and a director since April 2003.

Alan M. Cohen, 63

Mr. Cohen has been an Executive Vice President of Goldman Sachs and our Global Head of Compliance since February 2004.

Gary D. Cohn, 53

Mr. Cohn has been our President and Chief Operating Officer (or Co-Chief Operating Officer) and a director since June 2006.

Edith W. Cooper, 52

Ms. Cooper has been an Executive Vice President of Goldman Sachs since April 2011 and our Global Head of Human Capital Management since March 2008. From 2002 to 2008, she served in various positions at the firm, including sales management within the Securities Division.

Gregory K. Palm, 65

Mr. Palm has been an Executive Vice President of Goldman Sachs since May 1999, and our General Counsel and head or co-head of the Legal Department since May 1992.

John F.W. Rogers, 57

Mr. Rogers has been an Executive Vice President of Goldman Sachs since April 2011 and Chief of Staff and Secretary to the Board of Directors of Goldman Sachs since December 2001.

Harvey M. Schwartz, 49

Mr. Schwartz has been an Executive Vice President of Goldman Sachs and our Chief Financial Officer since January 2013. From February 2008 to January 2013, Mr. Schwartz was global co-head of the Securities Division.

Mark Schwartz, 59

Mr. Schwartz has been a Vice Chairman of Goldman Sachs and Chairman of Goldman Sachs Asia Pacific since rejoining the firm in June 2012. From 2006 to June 2012, he was Chairman of MissionPoint Capital Partners, an investment firm he co-founded.

Michael S. Sherwood, 48

Mr. Sherwood has been a Vice Chairman of Goldman Sachs since February 2008 and co-chief executive officer of Goldman Sachs International since 2005. He assumed responsibility for coordinating the firm's business and activities around Growth Markets in November 2013.

John S. Weinberg, 57

Mr. Weinberg has been a Vice Chairman of Goldman Sachs since June 2006. He has been co-head of Goldman Sachs' Investment Banking Division since December 2002.

Goldman Sachs 2013 Form 10-K 41
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The principal market on which our common stock is traded is the NYSE. Information relating to the high and low sales prices per share of our common stock, as reported by the Consolidated Tape Association, for each full quarterly period during 2011, 2012 and 2013 is set forth under the heading "Supplemental Financial Information - Common Stock Price Range" in Part II, Item 8 of the 2013 Form 10-K. As of February 14, 2014, there were 11,661 holders of record of our common stock.

During 2012 and 2013, a dividend of $0.35 per common share was declared on January 17, 2012, dividends of $0.46 per common share were declared on April 16, 2012 and July 16, 2012, dividends of $0.50 per common share were declared on October 15, 2012, January 15, 2013, April 15, 2013 and July 15, 2013 and a dividend of $0.55 per common share was declared on October 16, 2013. The holders of our common stock share proportionately on a per share basis in all dividends and other distributions on common stock declared by the Board of Directors of Group Inc. (Board).

The declaration of dividends by Group Inc. is subject to the discretion of our Board. Our Board will take into account such matters as general business conditions, our financial results, capital requirements, contractual, legal and regulatory restrictions on the payment of dividends by us to our shareholders or by our subsidiaries to us, the effect on our debt ratings and such other factors as our Board may deem relevant. See "Business - Regulation" in Part I, Item 1 of the 2013 Form 10-K for a discussion of potential regulatory limitations on our receipt of funds from our regulated subsidiaries and our payment of dividends to shareholders of Group Inc.

The table below sets forth the information with respect to purchases made by or on behalf of Group Inc. or any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common stock during the fourth quarter of our year ended December 2013.

Period
Total Number of
Shares
Purchased


Average Price
Paid per
Share


Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

 1

Maximum Number of
Shares That May Yet Be
Purchased Under the
Plans or Programs

 1

Month #1

(October 1, 2013 to October 31, 2013)

2,216,231 $160.43 2,216,231 63,459,586

Month #2

(November 1, 2013 to November 30, 2013)

4,308,122 165.06 4,308,122 59,151,464

Month #3

(December 1, 2013 to December 31, 2013)

2,055,968  2 169.63 1,965,511 57,185,953

Total

8,580,321 8,489,864

1.

On March 21, 2000, we announced that our Board had approved a repurchase program, pursuant to which up to 15 million shares of our common stock may be repurchased. This repurchase program was increased by an aggregate of 430 million shares by resolutions of our Board adopted from June 2001 through April 2013. We use our share repurchase program to help maintain the appropriate level of common equity. The repurchase program is effected primarily through regular open-market purchases, the amounts and timing of which are determined primarily by the firm's current and projected capital position, but which may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock. The repurchase program has no set expiration or termination date. Any repurchase of our common stock requires approval by the Federal Reserve Board.

2.

Includes 90,457 shares remitted by employees to satisfy minimum statutory withholding taxes on equity-based awards that were delivered to employees during the period.

Information relating to compensation plans under which our equity securities are authorized for issuance is presented in Part III, Item 12 of the 2013 Form 10-K.

Item 6.    Selected Financial Data

The Selected Financial Data table is set forth under Part II, Item 8 of the 2013 Form 10-K.

42 Goldman Sachs 2013 Form 10-K
Table of Contents

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

INDEX

Page No.

Introduction

44

Executive Overview

45

Business Environment

47

Critical Accounting Policies

49

Recent Accounting Developments

52

Use of Estimates

53

Results of Operations

54

Regulatory Developments

67

Balance Sheet and Funding Sources

69

Equity Capital

76

Off-Balance-Sheet Arrangements and Contractual Obligations

87

Risk Management and Risk Factors

89

Overview and Structure of Risk Management

90

Liquidity Risk Management

95

Market Risk Management

102

Credit Risk Management

109

Operational Risk Management

117

Certain Risk Factors That May  Affect Our Businesses

118

Goldman Sachs 2013 Form 10-K 43
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Introduction

The Goldman Sachs Group, Inc. (Group Inc.) is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.

We report our activities in four business segments: Investment Banking, Institutional Client Services, Investing & Lending and Investment Management. See "Results of Operations" below for further information about our business segments.

When we use the terms "Goldman Sachs," "the firm," "we," "us" and "our," we mean Group Inc., a Delaware corporation, and its consolidated subsidiaries.

References to "the 2013 Form 10-K" are to our Annual Report on Form 10-K for the year ended December 31, 2013. All references to 2013, 2012 and 2011 refer to our years ended, or the dates, as the context requires, December 31, 2013, December 31, 2012 and December 31, 2011, respectively. Any reference to a future year refers to a year ending on December 31 of that year. Certain reclassifications have been made to previously reported amounts to conform to the current presentation.

In this discussion and analysis of our financial condition and results of operations, we have included information that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control. This information includes statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, among other things, and may also include statements about the effect of changes to the capital and leverage rules applicable to banks and bank holding companies, the impact of the Dodd-Frank Act on our businesses and operations, and various legal proceedings or mortgage-related contingencies as set forth under "Legal Proceedings" and "Certain Mortgage-Related Contingencies" in Notes 27 and 18, respectively, to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K, as well as statements about the results of our Dodd-Frank Act and firm stress tests, statements about the objectives and effectiveness of our risk management and liquidity policies, statements about trends in or growth opportunities for our businesses, statements about our future status, activities or reporting under U.S. or non-U.S. banking and financial regulation, and statements about our investment banking transaction backlog. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in these forward-looking statements include, among others, those discussed below under "Certain Risk Factors That May Affect Our Businesses" as well as "Risk Factors" in Part I, Item 1A of the 2013 Form 10-K and "Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995" in Part I, Item 1 of the 2013 Form 10-K.

44 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Executive Overview

The firm generated net earnings of $8.04 billion for 2013, compared with $7.48 billion for 2012 and $4.44 billion for 2011. Our diluted earnings per common share were $15.46 for 2013, compared with $14.13 for 2012 and $4.51 for 2011. Return on average common shareholders' equity (ROE)  1 was 11.0% for 2013, compared with 10.7% for 2012 and 3.7% for 2011.

Book value per common share increased approximately 5% to $152.48 and tangible book value per common share  2 increased approximately 7% to $143.11 compared with the end of 2012.  3 During the year, the firm repurchased 39.3 million shares of its common stock for a total cost of $6.17 billion, while maintaining strong capital levels. Our Tier 1 capital ratio was 16.7% and our Tier 1 common ratio  4 was 14.6% as of December 2013 (in each case under Basel I and also reflecting the revised market risk regulatory capital requirements which became effective on January 1, 2013).

The firm generated net revenues of $34.21 billion for 2013. These results reflected significantly higher net revenues in Investment Banking, as well as higher net revenues in Investing & Lending and Investment Management compared with 2012. These increases were offset by lower net revenues in Institutional Client Services compared with 2012.

An overview of net revenues for each of our business segments is provided below.

Investment Banking

Net revenues in Investment Banking increased significantly compared with 2012, reflecting significantly higher net revenues in Underwriting, due to strong net revenues in both equity and debt underwriting. Net revenues in equity underwriting were significantly higher compared with 2012, reflecting an increase in client activity, particularly in initial public offerings. Net revenues in debt underwriting were significantly higher compared with 2012, principally due to leveraged finance activity. Net revenues in Financial Advisory were essentially unchanged compared with 2012.

Institutional Client Services

Net revenues in Institutional Client Services decreased compared with 2012, reflecting lower net revenues in both Fixed Income, Currency and Commodities Client Execution and Equities.

The decrease in Fixed Income, Currency and Commodities Client Execution compared with 2012 reflected significantly lower net revenues in interest rate products compared with a solid 2012, and significantly lower net revenues in mortgages compared with a strong 2012. In addition, net revenues in currencies were slightly lower, while net revenues in credit products and commodities were essentially unchanged compared with 2012. Fixed Income, Currency and Commodities Client Execution operated in a generally challenging environment during much of 2013, as macroeconomic concerns and uncertainty led to challenging market-making conditions and generally lower levels of activity.

1.

See "Results of Operations - Financial Overview" below for further information about our calculation of ROE.

2.

Tangible book value per common share is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. See "Equity Capital - Other Capital Metrics" below for further information about our calculation of tangible book value per common share.

3.

In October 2013, Berkshire Hathaway Inc. and certain of its subsidiaries (collectively, Berkshire Hathaway) exercised in full the warrant to purchase shares of the firm's common stock, which required net share settlement and resulted in a reduction of approximately 3% to both book value per common share and tangible book value per common share. See "Equity Capital - Equity Capital Management" below for further information about the Berkshire Hathaway warrant.

4.

Tier 1 common ratio is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. See "Equity Capital - Consolidated Regulatory Capital Ratios" below for further information about our Tier 1 common ratio.

Goldman Sachs 2013 Form 10-K 45
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The decrease in Equities compared with 2012 was due to the sale of our Americas reinsurance business  1 in 2013 and the sale of our hedge fund administration business in 2012. Net revenues in equities client execution (excluding net revenues from our Americas reinsurance business) were higher compared with 2012, including significantly higher net revenues in cash products, partially offset by significantly lower net revenues in derivatives. Commissions and fees were slightly higher compared with 2012. Securities services net revenues were significantly lower compared with 2012, primarily due to the sale of our hedge fund administration business in 2012 (2012 included a gain on sale of $494 million). During 2013, Equities operated in an environment characterized by a significant increase in global equity prices, particularly in Japan and the U.S., and generally lower volatility levels.

The net loss attributable to the impact of changes in our own credit spreads on borrowings for which the fair value option was elected was $296 million ($220 million and $76 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for 2013, compared with a net loss of $714 million ($433 million and $281 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for 2012.

Investing & Lending

Net revenues in Investing & Lending increased compared with 2012, reflecting a significant increase in net gains from investments in equity securities, driven by company-specific events and stronger corporate performance, as well as significantly higher global equity prices. In addition, net gains and net interest income from debt securities and loans were slightly higher, while other net revenues, related to our consolidated investments, were lower compared with 2012.

Investment Management

Net revenues in Investment Management increased compared with 2012, reflecting higher management and other fees, primarily due to higher average assets under supervision. During the year, total assets under supervision increased $77 billion to $1.04 trillion. Long-term assets under supervision increased $81 billion, including net inflows of $41 billion  2 , reflecting inflows in fixed income and equity assets, partially offset by outflows in alternative investment assets. Net market appreciation of $40 billion during the year was primarily in equity assets. Liquidity products decreased $4 billion.

Our businesses, by their nature, do not produce predictable earnings. Our results in any given period can be materially affected by conditions in global financial markets, economic conditions generally and other factors. For a further discussion of the factors that may affect our future operating results, see "Certain Risk Factors That May Affect Our Businesses" below, as well as "Risk Factors" in Part I, Item 1A of the 2013 Form 10-K.

1.

In April 2013, we completed the sale of a majority stake in our Americas reinsurance business and no longer consolidate this business. Net revenues related to the Americas reinsurance business were $317 million for 2013 and $1.08 billion for 2012. See Note 12 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about this sale.

2.

Fixed income flows for 2013 include $10 billion in assets managed by the firm related to our Americas reinsurance business, in which a majority stake was sold in April 2013, that were previously excluded from assets under supervision as they were assets of a consolidated subsidiary.

46 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Business Environment

Real gross domestic product (GDP), although generally rising, appeared to remain subdued in most major economies. Market sentiment improved in advanced economies, supported by better private sector growth prospects in the United States and signs of a turnaround in the Euro area, while monetary policy generally remained accommodative. Improvements in the U.S. economy reflected favorable developments in unemployment and housing, even though a reduction in fiscal spending weighed on growth. These improvements resulted in tighter credit spreads, significantly higher global equity prices and generally lower levels of volatility. However, signals during the year from the U.S. Federal Reserve that it would begin tapering its asset purchase program contributed to a rise in U.S. interest rates and a more challenging environment, particularly for emerging markets. In addition, continued political uncertainty, particularly the political debate in the United States surrounding the government shutdown and a potential breach of the debt ceiling, generally resulted in heightened risk aversion. These concerns also weighed on investment banking activity as industry-wide mergers and acquisitions activity declined compared with 2012. Industry-wide equity underwriting activity improved and industry-wide debt underwriting activity remained solid. For a further discussion of how market conditions may affect our businesses, see "Certain Risk Factors That May Affect Our Businesses" below as well as "Risk Factors" in Part I, Item 1A of the 2013 Form 10-K.

Global

During 2013, real GDP growth appeared to decline in many advanced economies and emerging markets. In advanced economies, the slowdown primarily reflected a decline in fixed investment growth in the United States and continued weakness in the Euro area. In emerging markets, growth in domestic demand decreased and current account balances worsened. Unemployment levels declined in some economies compared with 2012, including the United States, but increased in others, particularly in the Euro area.

The rate of unemployment continued to remain elevated in many advanced economies. During 2013, the U.S. Federal Reserve, the Bank of England and the Bank of Japan each left policy interest rates unchanged, while the European Central Bank reduced its policy interest rate. In December 2013, the U.S. Federal Reserve announced that it would begin to scale back its asset purchase program by $10 billion to $75 billion per month. The U.S. dollar weakened against both the Euro and the British pound, while it strengthened significantly against the Japanese yen.

United States

In the United States, real GDP increased by 1.9% in 2013, compared with an increase of 2.8% in 2012. Growth decelerated on the back of a significant contraction in federal government spending as a result of sequestration, as well as a slowdown in fixed investment. House prices, house sales and housing starts increased, although the rise in U.S. bond yields drove mortgage interest rates higher. Industrial production expanded in 2013, but at a slower pace than in the previous year. Although political uncertainty around the federal government shutdown led to some temporary deterioration, business and consumer confidence generally improved during the year, primarily reflecting continued improvement in the private sector. Measures of inflation were lower compared with 2012. The unemployment rate declined during 2013, but remained elevated. The U.S. Federal Reserve maintained its federal funds rate at a target range of zero to 0.25% during the year and announced in December 2013 a reduction in its monthly program to purchase U.S. Treasury securities and mortgage-backed securities. In addition, the U.S. Federal Reserve affirmed its commitment to keep short-term interest rates exceptionally low for some time, even after the unemployment rate falls to 6.5% or inflation rises materially. The yield on the 10-year U.S. Treasury note rose by 126 basis points during 2013 to 3.04%. In equity markets, the NASDAQ Composite Index, the S&P 500 Index and the Dow Jones Industrial Average increased by 38%, 30% and 26%, respectively, during 2013.

Goldman Sachs 2013 Form 10-K 47
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Europe

In the Euro area, real GDP declined by 0.4% in 2013, compared with a decrease of 0.6% in 2012. The contraction was principally due to continued weakness in domestic demand, primarily reflecting further declines in fixed investment and consumer spending. Business and consumer confidence remained at low levels and measures of core inflation decelerated further during the year. The unemployment rate remained elevated, particularly in Italy and Spain. Political uncertainty in Italy and the debt crisis in Cyprus temporarily increased market volatility earlier in the year, while private sector lending conditions remained very tight in periphery countries. To address these issues, the European Central Bank decreased its main refinancing operations rate by 50 basis points to 0.25%, and adopted forward guidance for the future path of interest rates as a new part of its monetary policy tools. The Euro appreciated by 5% against the U.S. dollar. In the United Kingdom, real GDP increased by 1.8% in 2013, compared with an increase of 0.3% in 2012. The Bank of England maintained its official bank rate at 0.50% and also introduced forward guidance for the future path of interest rates, contingent on the evolution of employment and inflation. The British pound appreciated by 2% against the U.S. dollar. Long-term government bond yields generally increased during the year, except in the periphery countries where yields fell. In equity markets, the DAX Index, the CAC 40 Index, the Euro Stoxx 50 Index and the FTSE 100 Index increased by 25%, 18%, 18% and 14%, respectively, during 2013.

Asia

In Japan, real GDP increased by 1.6% in 2013, compared with an increase of 1.4% in 2012. Growth was supported by significant increases in private housing investment and in public fixed investment. However, the trade balance continued to deteriorate during 2013. Measures of inflation turned positive during the year, but remain far from the Bank of Japan's newly adopted 2% inflation target. In addition, the Bank of Japan, under new leadership, introduced a new program of quantitative and qualitative monetary easing, which included a significant increase in the size and mandate of its asset purchases, as well as a commitment to a more targeted communication strategy.

The Bank of Japan also changed its main operating target for money market operations from the uncollateralized overnight call rate to the monetary base, which is set to increase annually by approximately 60-70 trillion yen. The yield on 10-year Japanese government bonds fell by 5 basis points during the year to 0.74%. The Japanese yen depreciated by 21% against the U.S. dollar and, in equity markets, the Nikkei 225 Index increased by 57%. In China, real GDP increased by 7.7% in 2013, broadly in line with the increase in the previous year, although impacted by less supportive monetary policies and tightening financial conditions. Measures of inflation remained moderate and The People's Bank of China kept the reserve requirement ratio unchanged. The Chinese yuan appreciated by 3% against the U.S. dollar and, in equity markets, the Shanghai Composite Index fell by 7%. In India, real GDP increased by an estimated 4.7% in 2013, compared with an increase of 5.1% in 2012. Growth decelerated, primarily reflecting a further softening in domestic demand growth and only slight improvements in the current account balance. The rate of wholesale inflation declined compared with 2012. The Indian rupee depreciated by 12% against the U.S. dollar, while, in equity markets, the BSE Sensex Index increased by 9%. Equity markets in Hong Kong and South Korea were slightly higher, as the Hang Seng Index increased by 3% and the KOSPI Composite Index increased by 1% during 2013.

Other Markets

In Brazil, real GDP increased by an estimated 2.2% in 2013, compared with an increase of 1.0% in 2012. Growth accelerated on the back of increasing domestic demand and fixed investment. The Brazilian real depreciated by 15% against the U.S. dollar and, in equity markets, the Bovespa Index decreased by 15% during 2013. In Russia, real GDP increased by 1.3% in 2013, compared with an increase of 3.4% in 2012. This slowdown primarily reflected a decline in domestic demand growth and a contraction in investment growth, particularly during the middle of the year. The Russian ruble depreciated by 8% against the U.S. dollar, while, in equity markets, the MICEX Index increased by 2% during 2013.

48 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Critical Accounting Policies

Fair Value

Fair Value Hierarchy. Financial instruments owned, at fair value and Financial instruments sold, but not yet purchased, at fair value (i.e., inventory), as well as certain other financial assets and financial liabilities, are reflected in our consolidated statements of financial condition at fair value (i.e., marked-to-market), with related gains or losses generally recognized in our consolidated statements of earnings. The use of fair value to measure financial instruments is fundamental to our risk management practices and is our most critical accounting policy.

The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We measure certain financial assets and financial liabilities as a portfolio (i.e., based on its net exposure to market and/or credit risks). In determining fair value, the hierarchy under U.S. generally accepted accounting principles (U.S. GAAP) gives (i) the highest priority to unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities (level 1 inputs), (ii) the next priority to inputs other than level 1 inputs that are observable, either directly or indirectly (level 2 inputs), and (iii) the lowest priority to inputs that cannot be observed in market activity (level 3 inputs). Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

The fair values for substantially all of our financial assets and financial liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and financial liabilities may require appropriate valuation adjustments that a market participant would require to arrive at fair value for factors such as counterparty and the firm's credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads. Valuation adjustments are generally based on market evidence.

Instruments categorized within level 3 of the fair value hierarchy are those which require one or more significant inputs that are not observable. As of December 2013 and December 2012, level 3 assets represented 4.4% and 5.0%, respectively, of our total assets. Absent evidence to the contrary, instruments classified within level 3 of the fair value hierarchy are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequent to the transaction date, we use other methodologies to determine fair value, which vary based on the type of instrument. Estimating the fair value of level 3 financial instruments requires judgments to be made. These judgments include:

Ÿ

determining the appropriate valuation methodology and/or model for each type of level 3 financial instrument;

Ÿ

determining model inputs based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations; and

Ÿ

determining appropriate valuation adjustments, including those related to illiquidity or counterparty credit quality.

Regardless of the methodology, valuation inputs and assumptions are only changed when corroborated by substantive evidence.

Controls Over Valuation of Financial Instruments. Market makers and investment professionals in our revenue-producing units are responsible for pricing our financial instruments. Our control infrastructure is independent of the revenue-producing units and is fundamental to ensuring that all of our financial instruments are appropriately valued at market-clearing levels. In the event that there is a difference of opinion in situations where estimating the fair value of financial instruments requires judgment (e.g., calibration to market comparables or trade comparison, as described below), the final valuation decision is made by senior managers in control and support functions that are independent of the revenue-producing units. This independent price verification is critical to ensuring that our financial instruments are properly valued.

Goldman Sachs 2013 Form 10-K 49
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Price Verification. All financial instruments at fair value in levels 1, 2 and 3 of the fair value hierarchy are subject to our independent price verification process. The objective of price verification is to have an informed and independent opinion with regard to the valuation of financial instruments under review. Instruments that have one or more significant inputs which cannot be corroborated by external market data are classified within level 3 of the fair value hierarchy. Price verification strategies utilized by our independent control and support functions include:

Ÿ

Trade Comparison. Analysis of trade data (both internal and external where available) is used to determine the most relevant pricing inputs and valuations.

Ÿ

External Price Comparison. Valuations and prices are compared to pricing data obtained from third parties (e.g., broker or dealers, MarkIt, Bloomberg, IDC, TRACE). Data obtained from various sources is compared to ensure consistency and validity. When broker or dealer quotations or third-party pricing vendors are used for valuation or price verification, greater priority is generally given to executable quotations.

Ÿ

Calibration to Market Comparables. Market-based transactions are used to corroborate the valuation of positions with similar characteristics, risks and components.

Ÿ

Relative Value Analyses. Market-based transactions are analyzed to determine the similarity, measured in terms of risk, liquidity and return, of one instrument relative to another or, for a given instrument, of one maturity relative to another.

Ÿ

Collateral Analyses. Margin calls on derivatives are analyzed to determine implied values which are used to corroborate our valuations.

Ÿ

Execution of Trades. Where appropriate, trading desks are instructed to execute trades in order to provide evidence of market-clearing levels.

Ÿ

Backtesting. Valuations are corroborated by comparison to values realized upon sales.

See Notes 5 through 8 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about fair value measurements.

Review of Net Revenues. Independent control and support functions ensure adherence to our pricing policy through a combination of daily procedures, including the explanation and attribution of net revenues based on the underlying factors. Through this process we independently validate net revenues, identify and resolve potential fair value or trade booking issues on a timely basis and seek to ensure that risks are being properly categorized and quantified.

Review of Valuation Models. The firm's independent model validation group, consisting of quantitative professionals who are separate from model developers, performs an independent model approval process. This process incorporates a review of a diverse set of model and trade parameters across a broad range of values (including extreme and/or improbable conditions) in order to critically evaluate:

Ÿ

the model's suitability for valuation and risk management of a particular instrument type;

Ÿ

the model's accuracy in reflecting the characteristics of the related product and its significant risks;

Ÿ

the suitability of the calculation techniques incorporated in the model;

Ÿ

the model's consistency with models for similar products; and

Ÿ

the model's sensitivity to input parameters and assumptions.

New or changed models are reviewed and approved prior to being put into use. Models are evaluated and re-approved annually to assess the impact of any changes in the product or market and any market developments in pricing theories.

50 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Level 3 Financial Assets at Fair Value. The table below presents financial assets measured at fair value and the amount of such assets that are classified within level 3 of the fair value hierarchy.

Total level 3 financial assets were $40.01 billion and $47.10 billion as of December 2013 and December 2012, respectively.

See Notes 5 through 8 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about changes in level 3 financial assets and fair value measurements.

As of December 2013 As of December 2012
in millions

Total at

Fair Value



Level 3
Total


Total at

Fair Value



Level 3
Total

Commercial paper, certificates of deposit, time deposits
and other money market instruments

$    8,608 $        - $    6,057 $        -

U.S. government and federal agency obligations

71,072 - 93,241 -

Non-U.S. government and agency obligations

40,944 40 62,250 26

Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

6,596 2,692 9,805 3,389

Loans and securities backed by residential real estate

9,025 1,961 8,216 1,619

Bank loans and bridge loans

17,400 9,324 22,407 11,235

Corporate debt securities

17,412 2,873 20,981 2,821

State and municipal obligations

1,476 257 2,477 619

Other debt obligations

3,129 807 2,251 1,185

Equities and convertible debentures

101,024 14,685 96,454 14,855

Commodities

4,556 - 11,696 -

Total cash instruments

281,242 32,639 335,835 35,749

Derivatives

57,879 7,076 71,176 9,920

Financial instruments owned, at fair value

339,121 39,715 407,011 45,669

Securities segregated for regulatory and other purposes

31,937 - 30,484 -

Securities purchased under agreements to resell

161,297 63 141,331 278

Securities borrowed

60,384 - 38,395 -

Receivables from customers and counterparties

7,416 235 7,866 641

Other assets  1

18 - 13,426 507

Total

$600,173 $40,013 $638,513 $47,095

1.

December 2012 consists of assets classified as held for sale related to our Americas reinsurance business, in which a majority stake was sold in April 2013, primarily consisting of securities accounted for as available-for-sale and insurance separate account assets. See Notes 3 and 12 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about the sale of our Americas reinsurance business.

Goldman Sachs 2013 Form 10-K 51
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Goodwill. Goodwill is the cost of acquired companies in excess of the fair value of net assets, including identifiable intangible assets, at the acquisition date. Goodwill is assessed annually in the fourth quarter for impairment, or more frequently if events occur or circumstances change that indicate an impairment may exist, by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test would be performed by comparing the estimated fair value of each reporting unit with its estimated net book value.

During the fourth quarter of 2013, we assessed goodwill for impairment. The qualitative assessment required management to make judgments and to evaluate several factors, which included, but were not limited to, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, entity-specific events, events affecting reporting units and sustained changes in our stock price. Based on our evaluation of these factors, we determined that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying amount, and therefore, we determined that goodwill was not impaired and that a quantitative goodwill impairment test was not required.

If we experience a prolonged period of weakness in the business environment or financial markets, our goodwill could be impaired in the future. In addition, significant changes to critical inputs of the goodwill impairment test (e.g., cost of equity) could cause the estimated fair value of our reporting units to decline, which could result in an impairment of goodwill in the future.

See Note 13 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about our goodwill.

Identifiable Intangible Assets. We amortize our identifiable intangible assets over their estimated lives or based on economic usage for certain commodities-related intangibles. Identifiable intangible assets are tested for impairment whenever events or changes in circumstances suggest that an asset's or asset group's carrying value may not be fully recoverable. See Note 13 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for the carrying value and estimated remaining lives of our identifiable intangible assets by major asset class.

A prolonged period of market weakness or significant changes in regulation could adversely impact our businesses and impair the value of our identifiable intangible assets. In addition, certain events could indicate a potential impairment of our identifiable intangible assets, including weaker business performance resulting in a decrease in our customer base and decreases in revenues from commodities-related customer contracts and relationships. Management judgment is required to evaluate whether indications of potential impairment have occurred, and to test intangibles for impairment if required.

An impairment loss, generally calculated as the difference between the estimated fair value and the carrying value of an asset or asset group, is recognized if the total of the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value.

See Note 12 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for impairments of our identifiable intangible assets.

Recent Accounting Developments

See Note 3 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for information about Recent Accounting Developments.

52 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Use of Estim ates

The use of generally accepted accounting principles requires management to make certain estimates and assumptions. In addition to the estimates we make in connection with fair value measurements, and the accounting for goodwill and identifiable intangible assets, the use of estimates and assumptions is also important in determining provisions for losses that may arise from litigation, regulatory proceedings and tax audits.

We estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. In addition, we estimate the upper end of the range of reasonably possible aggregate loss in excess of the related reserves for litigation proceedings where the firm believes the risk of loss is more than slight. See Notes 18 and 27 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for information on certain judicial, regulatory and legal proceedings.

Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total estimated liability in respect of litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses after considering, among other factors, the progress of each case or proceeding, our experience and the experience of others in similar cases or proceedings, and the opinions and views of legal counsel.

In accounting for income taxes, we estimate and provide for potential liabilities that may arise out of tax audits to the extent that uncertain tax positions fail to meet the recognition standard under FASB Accounting Standards Codification 740. See Note 24 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about accounting for income taxes.

Goldman Sachs 2013 Form 10-K 53
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Re sults of Operations

The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary over the shorter term due to fluctuations in U.S. and global economic and market conditions. See "Certain Risk Factors That May Affect Our Businesses" below and "Risk

Factors" in Part I, Item 1A of the 2013 Form 10-K for a further discussion of the impact of economic and market conditions on our results of operations.

Financial Overview

The table below presents an overview of our financial results.

Year Ended December
$ in millions, except per share amounts 2013 2012 2011

Net revenues

$34,206 $34,163 $28,811

Pre-tax earnings

11,737 11,207 6,169

Net earnings

8,040 7,475 4,442

Net earnings applicable to common shareholders

7,726 7,292 2,510

Diluted earnings per common share

15.46 14.13 4.51  2

Return on average common shareholders' equity  1

11.0 10.7 3.7 %  2

1.

ROE is computed by dividing net earnings applicable to common shareholders by average monthly common shareholders' equity. The table below presents our average common shareholders' equity.

Average for the

Year Ended December

in millions 2013 2012 2011

Total shareholders' equity

$77,353 $72,530 $72,708

Preferred stock

(6,892 (4,392 (3,990

Common shareholders' equity

$70,461 $68,138 $68,718

2.

Excluding the impact of the preferred dividend of $1.64 billion in the first quarter of 2011 (calculated as the difference between the carrying value and the redemption value of the preferred stock), related to the redemption of our 10% Cumulative Perpetual Preferred Stock, Series G (Series G Preferred Stock) held by Berkshire Hathaway, diluted earnings per common share were $7.46 and ROE was 5.9% for 2011. We believe that presenting our results for 2011 excluding this dividend is meaningful, as it increases the comparability of period-to-period results. Diluted earnings per common share and ROE excluding this dividend are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. The tables below present the calculation of net earnings applicable to common shareholders, diluted earnings per common share and average common shareholders' equity excluding the impact of this dividend.

in millions, except per share amount

Year Ended

December 2011


Net earnings applicable to common shareholders

$  2,510

Impact of the Series G Preferred Stock dividend

1,643

Net earnings applicable to common shareholders, excluding the impact of the Series G Preferred Stock dividend

4,153

Divided by: average diluted common shares outstanding

556.9

Diluted earnings per common share, excluding the impact of the Series G Preferred Stock dividend

$    7.46

in millions
Average for the
Year Ended
December 2011

Total shareholders' equity

$72,708

Preferred stock

(3,990

Common shareholders' equity

68,718

Impact of the Series G Preferred Stock dividend

1,264

Common shareholders' equity, excluding the impact of the Series G Preferred Stock dividend

$69,982

54 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Net Revenues

2013 versus 2012. Net revenues on the consolidated statements of earnings were $34.21 billion for 2013, essentially unchanged compared with 2012. 2013 included significantly higher investment banking revenues, as well as higher other principal transactions revenues and investment management revenues. In addition, commissions and fees were slightly higher compared with 2012. These increases were offset by lower market-making revenues and lower net interest income compared with 2012.

2012 versus 2011. Net revenues on the consolidated statements of earnings were $34.16 billion for 2012, 19% higher than 2011, reflecting significantly higher other principal transactions revenues, as well as higher market-making revenues, investment banking revenues and investment management revenues compared with 2011. These increases were partially offset by significantly lower net interest income and lower commissions and fees compared with 2011.

Non-interest Revenues

Investment banking

During 2013, investment banking revenues reflected an operating environment generally characterized by improved industry-wide equity underwriting activity, particularly in initial public offerings, as global equity prices significantly increased during the year. In addition, industry-wide debt underwriting activity remained solid, and included significantly higher leveraged finance activity, as interest rates remained low. However, ongoing macroeconomic concerns continued to weigh on investment banking activity as industry-wide mergers and acquisitions activity declined compared with 2012. If macroeconomic concerns continue and result in lower levels of client activity, investment banking revenues would likely be negatively impacted.

2013 versus 2012. Investment banking revenues on the consolidated statements of earnings were $6.00 billion for 2013, 22% higher than 2012, reflecting significantly higher revenues in underwriting, due to strong revenues in both equity and debt underwriting. Revenues in equity underwriting were significantly higher compared with 2012, reflecting an increase in client activity, particularly in initial public offerings. Revenues in debt underwriting were significantly higher compared with 2012, principally due to leveraged finance activity. Revenues in financial advisory were essentially unchanged compared with 2012.

2012 versus 2011. Investment banking revenues on the consolidated statements of earnings were $4.94 billion for 2012, 13% higher than 2011, reflecting significantly higher revenues in underwriting, due to strong revenues in debt underwriting. Revenues in debt underwriting were significantly higher compared with 2011, primarily reflecting higher revenues from investment-grade and leveraged finance activity. Revenues in equity underwriting were lower compared with 2011, primarily reflecting a decline in industry-wide initial public offerings. Revenues in financial advisory were essentially unchanged compared with 2011.

Investment management

During 2013, investment management revenues reflected an operating environment generally characterized by improved asset prices, particularly in equities, resulting in appreciation in the value of client assets. In addition, the mix of average assets under supervision shifted slightly compared with 2012 from liquidity products to long-term assets under supervision, primarily due to growth in equity and fixed income assets. In the future, if asset prices were to decline, or investors favor asset classes that typically generate lower fees or investors withdraw their assets, investment management revenues would likely be negatively impacted. In addition, continued concerns about the global economic outlook could result in downward pressure on assets under supervision.

2013 versus 2012. Investment management revenues on the consolidated statements of earnings were $5.19 billion for 2013, 5% higher than 2012, reflecting higher management and other fees, primarily due to higher average assets under supervision.

2012 versus 2011. Investment management revenues on the consolidated statements of earnings were $4.97 billion for 2012, 6% higher than 2011, due to significantly higher incentive fees, partially offset by slightly lower management and other fees.

Commissions and fees

During 2013, commissions and fees reflected an environment characterized by higher average daily volumes in listed cash equities in Asia and Europe and lower average daily volumes in listed cash equities in the United States, and generally lower volatility levels compared with 2012. If market volumes were to decline, commissions and fees would likely be negatively impacted.

2013 versus 2012. Commissions and fees on the consolidated statements of earnings were $3.26 billion for 2013, slightly higher than 2012, primarily reflecting higher commissions and fees in Asia and Europe. During 2013, our average daily volumes were higher in Asia and Europe and lower in the United States compared with 2012, consistent with listed cash equity market volumes.

Goldman Sachs 2013 Form 10-K 55
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

2012 versus 2011. Commissions and fees on the consolidated statements of earnings were $3.16 billion for 2012, 16% lower than 2011, reflecting lower commissions and fees in the United States, Europe and Asia. Our average daily volumes during 2012 were lower in each of these regions compared with 2011, consistent with listed cash equity market volumes.

Market making

"Market making" is comprised of revenues (excluding net interest) from client execution activities related to making markets in interest rate products, credit products, mortgages, currencies, commodities and equity products. Market-making activities are included in our Institutional Client Services segment.

During 2013, market-making revenues reflected a challenging operating environment that required continual reassessment of the outlook for the global economy, as uncertainty about when the U.S. Federal Reserve would begin tapering its asset purchase program, as well as constant global political risk and uncertainty, were interspersed with improvements in the U.S. economy over the course of the year. As a result, our clients' risk appetite and activity levels fluctuated during 2013. Compared with 2012, activity levels were generally lower, global equity prices significantly increased and credit spreads tightened. If macroeconomic concerns continue over the long term, market-making revenues would likely continue to be negatively impacted.

2013 versus 2012. Market-making revenues on the consolidated statements of earnings were $9.37 billion for 2013, 17% lower than 2012. The decrease compared with 2012 was primarily due to significantly lower revenues in equity products, mortgages and interest rate products, as well as lower revenues in currencies. The decrease in equity products was due to the sale of our Americas reinsurance business in 2013, the sale of our hedge fund administration business in 2012 (2012 included a gain on sale of $494 million) and lower revenues in derivatives, partially offset by significantly higher revenues in cash products compared with 2012. Revenues in commodities were higher, while revenues in credit products were essentially unchanged compared with 2012. In December 2013, we completed the sale of a majority stake in our European insurance business and recognized a gain of $211 million.

2012 versus 2011. Market-making revenues on the consolidated statements of earnings were $11.35 billion for 2012, 22% higher than 2011, primarily reflecting significantly higher revenues in mortgages and higher revenues in interest rate products, credit products and equity cash products, partially offset by significantly lower revenues in commodities. In addition, market-making

revenues included significantly higher revenues in securities services compared with 2011, reflecting a gain of $494 million on the sale of our hedge fund administration business.

Other principal transactions

"Other principal transactions" is comprised of revenues (excluding net interest) from our investing activities and the origination of loans to provide financing to clients. In addition, "Other principal transactions" includes revenues related to our consolidated investments. Other principal transactions are included in our Investing & Lending segment.

During 2013, other principal transactions revenues generally reflected favorable company-specific events and strong corporate performance, as well as the impact of significantly higher global equity prices and tighter corporate credit spreads. However, concerns about the outlook for the global economy and uncertainty over financial regulatory reform continue to impact the global marketplace. If equity markets decline or credit spreads widen, other principal transactions revenues would likely be negatively impacted.

2013 versus 2012. Other principal transactions revenues on the consolidated statements of earnings were $6.99 billion for 2013, 19% higher than 2012, reflecting a significant increase in net gains from investments in equity securities, driven by company-specific events and stronger corporate performance, as well as significantly higher global equity prices. In addition, net gains from debt securities and loans were slightly higher, while revenues related to our consolidated investments were lower compared with 2012.

2012 versus 2011. Other principal transactions revenues on the consolidated statements of earnings were $5.87 billion for 2012 compared with $1.51 billion for 2011. The increase compared with 2011 reflected a significant increase in net gains from investments in equity securities, primarily in public equities, principally due to the impact of an increase in global equity prices during 2012 after equity prices in Europe and Asia declined significantly during 2011. Net gains from equity securities included a gain in 2012 and a loss in 2011 related to our investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC). The increase compared with 2011 also reflected a significant increase in net gains from debt securities and loans, primarily due to approximately $1 billion of unrealized losses related to relationship lending activities, including the effect of hedges, in 2011 and the impact of a more favorable credit environment as credit spreads tightened during 2012 after widening during 2011. These increases were partially offset by lower revenues related to our consolidated investments.

56 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Net Interest Income

2013 versus 2012. Net interest income on the consolidated statements of earnings was $3.39 billion for 2013, 13% lower than 2012. The decrease compared with 2012 was primarily due to lower average yields on financial instruments owned, at fair value, partially offset by lower interest expense on financial instruments sold, but not yet purchased, at fair value and collateralized financings.

2012 versus 2011. Net interest income on the consolidated statements of earnings was $3.88 billion for 2012, 25% lower than 2011. The decrease compared with 2011 was primarily due to lower average yields on financial instruments owned, at fair value and collateralized agreements.

See "Statistical Disclosures - Distribution of Assets, Liabilities and Shareholders' Equity" in Part II, Item 8 of the 2013 Form 10-K for further information about our sources of net interest income.

Operating Expenses

Our operating expenses are primarily influenced by compensation, headcount and levels of business activity. Compensation and benefits includes salaries, discretionary compensation, amortization of equity awards and other items such as benefits. Discretionary compensation is significantly impacted by, among other factors, the level of net revenues, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment.

The table below presents our operating expenses and total staff (which includes employees, consultants and temporary staff).

Year Ended December
$ in millions 2013 2012 2011

Compensation and benefits

$12,613 $12,944 $12,223

Brokerage, clearing, exchange and distribution fees

2,341 2,208 2,463

Market development

541 509 640

Communications and technology

776 782 828

Depreciation and amortization

1,322 1,738 1,865

Occupancy

839 875 1,030

Professional fees

930 867 992

Insurance reserves  1

176 598 529

Other expenses

2,931 2,435 2,072

Total non-compensation expenses

9,856 10,012 10,419

Total operating expenses

$22,469 $22,956 $22,642

Total staff at period-end

32,900 32,400 33,300

1.

Related revenues are included in "Market making" in the consolidated statements of earnings.

Goldman Sachs 2013 Form 10-K 57
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

2013 versus 2012. Operating expenses on the consolidated statements of earnings were $22.47 billion for 2013, 2% lower than 2012. Compensation and benefits expenses on the consolidated statements of earnings were $12.61 billion for 2013, 3% lower compared with $12.94 billion for 2012. The ratio of compensation and benefits to net revenues for 2013 was 36.9% compared with 37.9% for 2012. Total staff increased 2% during 2013.

Non-compensation expenses on the consolidated statements of earnings were $9.86 billion for 2013, 2% lower than 2012. The decrease compared with 2012 included a decline in insurance reserves, reflecting the sale of our Americas reinsurance business, and a decrease in depreciation and amortization expenses, primarily reflecting lower impairment charges and lower operating expenses related to consolidated investments. These decreases were partially offset by an increase in other expenses, due to higher net provisions for litigation and regulatory proceedings, and higher brokerage, clearing, exchange and distribution fees. Net provisions for litigation and regulatory proceedings for 2013 were $962 million (primarily comprised of net provisions for mortgage-related matters) compared with $448 million for 2012 (including a settlement with the Board of Governors of the Federal Reserve System (Federal Reserve Board) regarding the independent foreclosure review). 2013 included a charitable contribution of $155 million to Goldman Sachs Gives, our donor-advised fund. Compensation was reduced to fund this charitable contribution to Goldman Sachs Gives. The firm asks its participating managing directors to make recommendations regarding potential charitable recipients for this contribution.

2012 versus 2011. Operating expenses on the consolidated statements of earnings were $22.96 billion for 2012, essentially unchanged compared with 2011. Compensation and benefits expenses on the consolidated statements of earnings were $12.94 billion for 2012, 6% higher compared with $12.22 billion for 2011. The ratio of compensation and benefits to net revenues for 2012 was 37.9%, compared with 42.4% for 2011. Total staff decreased 3% during 2012.

Non-compensation expenses on the consolidated statements of earnings were $10.01 billion for 2012, 4% lower compared with 2011. The decrease compared with 2011 primarily reflected lower brokerage, clearing, exchange and distribution fees, lower occupancy expenses and a decrease in depreciation and amortization expenses, principally due to lower impairment charges. In addition, market development expenses and professional fees declined compared with 2011, primarily reflecting the impact of expense reduction initiatives. These decreases were partially offset by higher other expenses and increased insurance reserves related to our reinsurance business. The increase in other expenses compared with 2011 primarily reflected higher net provisions for litigation and regulatory proceedings and higher charitable contributions. Net provisions for litigation and regulatory proceedings were $448 million during 2012 (including a settlement with the Federal Reserve Board regarding the independent foreclosure review) compared with $175 million for 2011. Charitable contributions were $225 million during 2012, including $159 million to Goldman Sachs Gives, our donor-advised fund, and $10 million to The Goldman Sachs Foundation, compared with $163 million during 2011, including $78 million to Goldman Sachs Gives and $25 million to The Goldman Sachs Foundation. Compensation was reduced to fund the charitable contribution to Goldman Sachs Gives. The firm asks its participating managing directors to make recommendations regarding potential charitable recipients for this contribution.

Provision for Taxes

The effective income tax rate for 2013 was 31.5%, down from 33.3% for 2012. The decrease from 33.3% to 31.5% was primarily due to a determination that certain non-U.S. earnings will be permanently reinvested abroad.

The effective income tax rate for 2012 was 33.3%, up from 28.0% for 2011. The increase from 28.0% to 33.3% was primarily due to the earnings mix and a decrease in the impact of permanent benefits.

The rules related to the deferral of U.S. tax on certain non-repatriated active financing income expired effective December 31, 2013. This change is not expected to have a material impact on our financial condition, results of operations or cash flows for the year ending December 2014.

58 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Segment Operating Results

The table below presents the net revenues, operating expenses and pre-tax earnings/(loss) of our segments.

Year Ended December
in millions 2013 2012 2011

Investment Banking

Net revenues $  6,004 $  4,926 $  4,355
Operating expenses 3,475 3,330 2,995
Pre-tax earnings $  2,529 $  1,596 $  1,360

Institutional Client Services

Net revenues $15,721 $18,124 $17,280
Operating expenses 11,782 12,480 12,837
Pre-tax earnings $  3,939 $  5,644 $  4,443

Investing & Lending

Net revenues $  7,018 $  5,891 $  2,142
Operating expenses 2,684 2,666 2,673
Pre-tax earnings/(loss) $  4,334 $  3,225 $    (531

Investment Management

Net revenues $  5,463 $  5,222 $  5,034
Operating expenses 4,354 4,294 4,020
Pre-tax earnings $  1,109 $     928 $  1,014

Total

Net revenues $34,206 $34,163 $28,811
Operating expenses 22,469 22,956 22,642
Pre-tax earnings $11,737 $11,207 $  6,169

Total operating expenses in the table above include the following expenses that have not been allocated to our segments:

Ÿ

charitable contributions of $155 million for 2013, $169 million for 2012 and $103 million for 2011; and

Ÿ

real estate-related exit costs of $19 million for 2013, $17 million for 2012 and $14 million for 2011. Real estate-related exit costs are included in "Depreciation and amortization" and "Occupancy" in the consolidated statements of earnings.

Net revenues in our segments include allocations of interest income and interest expense to specific securities, commodities and other positions in relation to the cash generated by, or funding requirements of, such underlying positions. See Note 25 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about our business segments.

The cost drivers of Goldman Sachs taken as a whole - compensation, headcount and levels of business activity - are broadly similar in each of our business segments. Compensation and benefits expenses within our segments reflect, among other factors, the overall performance of Goldman Sachs as well as the performance of individual businesses. Consequently, pre-tax margins in one segment of our business may be significantly affected by the performance of our other business segments. A discussion of segment operating results follows.

Goldman Sachs 2013 Form 10-K 59
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Investment Banking

Our Investment Banking segment is comprised of:

Financial Advisory. Includes strategic advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, risk management, restructurings and spin-offs, and derivative transactions directly related to these client advisory assignments.

Underwriting. Includes public offerings and private placements, including domestic and cross-border transactions, of a wide range of securities, loans and other financial instruments, and derivative transactions directly related to these client underwriting activities.

The table below presents the operating results of our Investment Banking segment.

Year Ended December
in millions 2013 2012 2011

Financial Advisory

$1,978 $1,975 $1,987

Equity underwriting

1,659 987 1,085

Debt underwriting

2,367 1,964 1,283

Total Underwriting

4,026 2,951 2,368

Total net revenues

6,004 4,926 4,355

Operating expenses

3,475 3,330 2,995

Pre-tax earnings

$2,529 $1,596 $1,360

The table below presents our financial advisory and underwriting transaction volumes.  1

Year Ended December
in billions 2013 2012 2011

Announced mergers and acquisitions

$   625 $   739 $   616

Completed mergers and acquisitions

633 575 656

Equity and equity-related offerings  2

91 57 55

Debt offerings  3

280 242 206

1.

Source: Thomson Reuters. Announced and completed mergers and acquisitions volumes are based on full credit to each of the advisors in a transaction. Equity and equity-related offerings and debt offerings are based on full credit for single book managers and equal credit for joint book managers. Transaction volumes may not be indicative of net revenues in a given period. In addition, transaction volumes for prior periods may vary from amounts previously reported due to the subsequent withdrawal or a change in the value of a transaction.

2.

Includes Rule 144A and public common stock offerings, convertible offerings and rights offerings.

3.

Includes non-convertible preferred stock, mortgage-backed securities, asset-backed securities and taxable municipal debt. Includes publicly registered and Rule 144A issues. Excludes leveraged loans.

2013 versus 2012. Net revenues in Investment Banking were $6.00 billion for 2013, 22% higher than 2012.

Net revenues in Financial Advisory were $1.98 billion, essentially unchanged compared with 2012. Net revenues in Underwriting were $4.03 billion, 36% higher than 2012, due to strong net revenues in both equity and debt underwriting. Net revenues in equity underwriting were significantly higher compared with 2012, reflecting an increase in client activity, particularly in initial public offerings. Net revenues in debt underwriting were significantly higher compared with 2012, principally due to leveraged finance activity.

During 2013, Investment Banking operated in an environment generally characterized by improved industry-wide equity underwriting activity, particularly in initial public offerings, as global equity prices significantly increased during the year. In addition, industry-wide debt underwriting activity remained solid, and included significantly higher leveraged finance activity, as interest rates remained low. However, ongoing macroeconomic concerns continued to weigh on investment banking activity as industry-wide mergers and acquisitions activity declined compared with 2012. If macroeconomic concerns continue and result in lower levels of client activity, net revenues in Investment Banking would likely be negatively impacted.

During 2013, our investment banking transaction backlog increased significantly due to significantly higher estimated net revenues from both potential advisory transactions and potential underwriting transactions. The increase in underwriting reflects significantly higher estimated net revenues from potential equity underwriting transactions, primarily in initial public offerings, and higher estimated net revenues from potential debt underwriting transactions, principally from leveraged finance activity.

60 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Our investment banking transaction backlog represents an estimate of our future net revenues from investment banking transactions where we believe that future revenue realization is more likely than not. We believe changes in our investment banking transaction backlog may be a useful indicator of client activity levels which, over the long term, impact our net revenues. However, the time frame for completion and corresponding revenue recognition of transactions in our backlog varies based on the nature of the assignment, as certain transactions may remain in our backlog for longer periods of time and others may enter and leave within the same reporting period. In addition, our transaction backlog is subject to certain limitations, such as assumptions about the likelihood that individual client transactions will occur in the future. Transactions may be cancelled or modified, and transactions not included in the estimate may also occur.

Operating expenses were $3.48 billion for 2013, 4% higher than 2012, due to increased compensation and benefits expenses, primarily resulting from higher net revenues. Pre-tax earnings were $2.53 billion in 2013, 58% higher than 2012.

2012 versus 2011. Net revenues in Investment Banking were $4.93 billion for 2012, 13% higher than 2011.

Net revenues in Financial Advisory were $1.98 billion, essentially unchanged compared with 2011. Net revenues in Underwriting were $2.95 billion, 25% higher than 2011, due to strong net revenues in debt underwriting. Net revenues in debt underwriting were significantly higher compared with 2011, primarily reflecting higher net revenues from investment-grade and leveraged finance activity. Net revenues in equity underwriting were lower compared with 2011, primarily reflecting a decline in industry-wide initial public offerings.

During 2012, Investment Banking operated in an environment generally characterized by continued concerns about the outlook for the global economy and political uncertainty. These concerns weighed on investment banking activity, as completed mergers and acquisitions activity declined compared with 2011, and equity and equity-related underwriting activity remained low, particularly in initial public offerings. However, industry-wide debt underwriting activity improved compared with 2011, as credit spreads tightened and interest rates remained low.

During 2012, our investment banking transaction backlog increased due to an increase in potential debt underwriting transactions, primarily reflecting an increase in leveraged finance transactions, and an increase in potential advisory transactions. These increases were partially offset by a decrease in potential equity underwriting transactions compared with the end of 2011, reflecting uncertainty in market conditions.

Operating expenses were $3.33 billion for 2012, 11% higher than 2011, due to increased compensation and benefits expenses, primarily resulting from higher net revenues. Pre-tax earnings were $1.60 billion in 2012, 17% higher than 2011.

Goldman Sachs 2013 Form 10-K 61
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Institutional Client Services

Our Institutional Client Services segment is comprised of:

Fixed Income, Currency and Commodities Client Execution. Includes client execution activities related to making markets in interest rate products, credit products, mortgages, currencies and commodities.

We generate market-making revenues in these activities in three ways:

Ÿ

In large, highly liquid markets (such as markets for U.S. Treasury bills or certain mortgage pass-through certificates), we execute a high volume of transactions for our clients for modest spreads and fees.

Ÿ

In less liquid markets (such as mid-cap corporate bonds, growth market currencies or certain non-agency mortgage-backed securities), we execute transactions for our clients for spreads and fees that are generally somewhat larger.

Ÿ

We also structure and execute transactions involving customized or tailor-made products that address our clients' risk exposures, investment objectives or other complex needs (such as a jet fuel hedge for an airline).

Given the focus on the mortgage market, our mortgage activities are further described below.

Our activities in mortgages include commercial mortgage-related securities, loans and derivatives, residential mortgage-related securities, loans and derivatives (including U.S. government agency-issued collateralized mortgage obligations, other prime, subprime and Alt-A securities and loans), and other asset-backed securities, loans and derivatives.

We buy, hold and sell long and short mortgage positions, primarily for market making for our clients. Our inventory therefore changes based on client demands and is generally held for short-term periods.

See Notes 18 and 27 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for information about exposure to mortgage repurchase requests, mortgage rescissions and mortgage-related litigation.

Equities. Includes client execution activities related to making markets in equity products and commissions and fees from executing and clearing institutional client transactions on major stock, options and futures exchanges worldwide, as well as over-the-counter transactions. Equities also includes our securities services business, which provides financing, securities lending and other prime brokerage services to institutional clients, including hedge funds, mutual funds, pension funds and foundations, and generates revenues primarily in the form of interest rate spreads or fees.

The table below presents the operating results of our Institutional Client Services segment.

Year Ended December
in millions 2013 2012 2011

Fixed Income, Currency and Commodities Client Execution

$  8,651 $  9,914 $  9,018

Equities client execution  1

2,594 3,171 3,031

Commissions and fees

3,103 3,053 3,633

Securities services

1,373 1,986 1,598

Total Equities

7,070 8,210 8,262

Total net revenues

15,721 18,124 17,280

Operating expenses

11,782 12,480 12,837

Pre-tax earnings

$  3,939 $  5,644 $  4,443

1.

In April 2013, we completed the sale of a majority stake in our Americas reinsurance business and no longer consolidate this business. Net revenues related to the Americas reinsurance business were $317 million for 2013, $1.08 billion for 2012 and $880 million for 2011. See Note 12 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about this sale.

2013 versus 2012. Net revenues in Institutional Client Services were $15.72 billion for 2013, 13% lower than 2012.

Net revenues in Fixed Income, Currency and Commodities Client Execution were $8.65 billion for 2013, 13% lower than 2012, reflecting significantly lower net revenues in interest rate products compared with a solid 2012, and significantly lower net revenues in mortgages compared with a strong 2012. The decrease in interest rate products and mortgages primarily reflected the impact of a more challenging environment and lower activity levels compared with 2012. In addition, net revenues in currencies were slightly lower, while net revenues in credit products and commodities were essentially unchanged compared with 2012. In December 2013, we completed the sale of a majority stake in our European insurance business and recognized a gain of $211 million.

62 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Net revenues in Equities were $7.07 billion for 2013, 14% lower compared with 2012, due to the sale of our Americas reinsurance business  1 in 2013 and the sale of our hedge fund administration business in 2012. Net revenues in equities client execution (excluding net revenues from our Americas reinsurance business) were higher compared with 2012, including significantly higher net revenues in cash products, partially offset by significantly lower net revenues in derivatives. Commissions and fees were slightly higher compared with 2012, reflecting higher commissions and fees in Asia and Europe, partially offset by lower commissions and fees in the United States. Our average daily volumes during 2013 were higher in Asia and Europe and lower in the United States compared with 2012, consistent with listed cash equity market volumes. Securities services net revenues were significantly lower compared with 2012, primarily due to the sale of our hedge fund administration business in 2012 (2012 included a gain on sale of $494 million). During 2013, Equities operated in an environment characterized by a significant increase in global equity prices, particularly in Japan and the U.S., and generally lower volatility levels.

The net loss attributable to the impact of changes in our own credit spreads on borrowings for which the fair value option was elected was $296 million ($220 million and $76 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for 2013, compared with a net loss of $714 million ($433 million and $281 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for 2012.

During 2013, Institutional Client Services operated in a challenging environment that required continual reassessment of the outlook for the global economy, as uncertainty about when the U.S. Federal Reserve would begin tapering its asset purchase program, as well as constant global political risk and uncertainty, were interspersed with improvements in the U.S. economy over the course of the year. As a result, our clients' risk appetite and activity levels fluctuated during 2013. Compared with 2012, activity levels were generally lower, global equity prices significantly increased and credit spreads tightened. If macroeconomic concerns continue over the long term, net revenues in Fixed Income, Currency and Commodities Client Execution and Equities would likely continue to be negatively impacted.

Operating expenses were $11.78 billion for 2013, 6% lower than 2012, due to decreased compensation and benefits expenses, primarily resulting from lower net revenues, and lower expenses as a result of the sale of a majority stake in our Americas reinsurance business in April 2013. These decreases were partially offset by increased net provisions for litigation and regulatory proceedings, primarily comprised of net provisions for mortgage-related matters, and higher brokerage, clearing, exchange and distribution fees. Pre-tax earnings were $3.94 billion in 2013, 30% lower than 2012.

2012 versus 2011. Net revenues in Institutional Client Services were $18.12 billion for 2012, 5% higher than 2011.

Net revenues in Fixed Income, Currency and Commodities Client Execution were $9.91 billion for 2012, 10% higher than 2011. These results reflected strong net revenues in mortgages, which were significantly higher compared with 2011 in both residential and commercial products. In addition, net revenues in credit products and interest rate products were solid and higher compared with 2011. The increase in mortgages, credit products and interest rates primarily reflected the impact of improved market-making conditions, including tighter credit spreads, compared with 2011. These increases were partially offset by significantly lower net revenues in commodities and slightly lower net revenues in currencies. The decrease in commodities primarily reflected more challenging market-making conditions, in part driven by lower levels of market volatility.

1.

In April 2013, we completed the sale of a majority stake in our Americas reinsurance business and no longer consolidate this business. Net revenues related to the Americas reinsurance business were $317 million for 2013, $1.08 billion for 2012 and $880 million for 2011. See Note 12 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about this sale.

Goldman Sachs 2013 Form 10-K 63
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Net revenues in Equities were $8.21 billion for 2012, essentially unchanged compared with 2011. Net revenues in securities services were significantly higher compared with 2011, reflecting a gain of $494 million on the sale of our hedge fund administration business. In addition, equities client execution net revenues were higher than 2011, primarily reflecting significantly higher results in cash products, principally due to increased levels of client activity. These increases were offset by lower commissions and fees, reflecting declines in the United States, Europe and Asia. Our average daily volumes during 2012 were lower in each of these regions compared with 2011, consistent with listed cash equity market volumes. During 2012, Equities operated in an environment generally characterized by an increase in global equity prices and lower volatility levels.

The net loss attributable to the impact of changes in our own credit spreads on borrowings for which the fair value option was elected was $714 million ($433 million and $281 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for 2012, compared with a net gain of $596 million ($399 million and $197 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for 2011.

During 2012, Institutional Client Services operated in an environment generally characterized by continued broad market concerns and uncertainties, although positive developments helped to improve market conditions. These developments included certain central bank actions to ease monetary policy and address funding risks for European financial institutions. In addition, the U.S. economy posted stable to improving economic data, including favorable developments in unemployment and housing. These improvements resulted in tighter credit spreads, higher global equity prices and lower levels of volatility. However, concerns about the outlook for the global economy and continued political uncertainty, particularly the political debate in the United States surrounding the fiscal cliff, generally resulted in client risk aversion and lower activity levels. Also, uncertainty over financial regulatory reform persisted.

Operating expenses were $12.48 billion for 2012, 3% lower than 2011, primarily due to lower brokerage, clearing, exchange and distribution fees, and lower impairment charges, partially offset by higher net provisions for litigation and regulatory proceedings. Pre-tax earnings were $5.64 billion in 2012, 27% higher than 2011.

Investing & Lending

Investing & Lending includes our investing activities and the origination of loans to provide financing to clients. These investments, some of which are consolidated, and loans are typically longer-term in nature. We make investments, directly and indirectly through funds that we manage, in debt securities and loans, public and private equity securities, and real estate entities.

The table below presents the operating results of our Investing & Lending segment.

Year Ended December
in millions 2013 2012 2011

Equity securities

$3,930 $2,800 $   603

Debt securities and loans

1,947 1,850 96

Other

1,141 1,241 1,443

Total net revenues

7,018 5,891 2,142

Operating expenses

2,684 2,666 2,673

Pre-tax earnings/(loss)

$4,334 $3,225 $  (531

2013 versus 2012. Net revenues in Investing & Lending were $7.02 billion for 2013, 19% higher than 2012, reflecting a significant increase in net gains from investments in equity securities, driven by company-specific events and stronger corporate performance, as well as significantly higher global equity prices. In addition, net gains and net interest income from debt securities and loans were slightly higher, while other net revenues, related to our consolidated investments, were lower compared with 2012. If equity markets decline or credit spreads widen, net revenues in Investing & Lending would likely be negatively impacted.

Operating expenses were $2.68 billion for 2013, essentially unchanged compared with 2012. Operating expenses during 2013 included lower impairment charges and lower operating expenses related to consolidated investments, partially offset by increased compensation and benefits expenses due to higher net revenues compared with 2012. Pre-tax earnings were $4.33 billion in 2013, 34% higher than 2012.

64 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

2012 versus 2011. Net revenues in Investing & Lending were $5.89 billion for 2012 compared with $2.14 billion for 2011. The increase compared with 2011 reflected a significant increase in net gains from investments in equity securities, primarily in public equities, principally due to the impact of an increase in global equity prices during 2012 after equity prices in Europe and Asia declined significantly during 2011. Net gains from equity securities included a gain of $408 million in 2012 and a loss of $517 million in 2011 related to our investment in the ordinary shares of ICBC. The increase compared with 2011 also reflected a significant increase in net gains from debt securities and loans, primarily due to approximately $1 billion of unrealized losses related to relationship lending activities, including the effect of hedges, in 2011 and the impact of a more favorable credit environment as credit spreads tightened during 2012 after widening during 2011. These increases were partially offset by lower other net revenues, principally related to our consolidated investments.

Operating expenses were $2.67 billion for 2012, essentially unchanged compared with 2011. Pre-tax earnings were $3.23 billion in 2012, compared with a pre-tax loss of $531 million in 2011.

Investment Management

Investment Management provides investment management services and offers investment products (primarily through separately managed accounts and commingled vehicles, such as mutual funds and private investment funds) across all major asset classes to a diverse set of institutional and individual clients. Investment Management also offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other transaction services to high-net-worth individuals and families.

Assets under supervision include assets under management and other client assets. Assets under management include client assets where we earn a fee for managing assets on a discretionary basis. This includes net assets in our mutual funds, hedge funds, credit funds and private equity funds (including real estate funds), and separately managed accounts for institutional and individual investors. Other client assets include client assets invested with third-party managers, bank deposits and advisory relationships where we earn a fee for advisory and other services, but do not have investment discretion. Assets under supervision do not include the self-directed brokerage assets of our clients. Long-term assets under supervision represent assets under supervision excluding liquidity products. Liquidity products represent money markets and bank deposit assets.

Assets under supervision typically generate fees as a percentage of net asset value, which vary by asset class and are affected by investment performance as well as asset inflows and redemptions. Asset classes such as alternative investment and equity assets typically generate higher fees relative to fixed income and liquidity product assets. The average effective management fee (which excludes non-asset-based fees) we earned on our assets under supervision was 40 basis points for 2013, 39 basis points for 2012 and 41 basis points for 2011.

In certain circumstances, we are also entitled to receive incentive fees based on a percentage of a fund's or a separately managed account's return, or when the return exceeds a specified benchmark or other performance targets. Incentive fees are recognized only when all material contingencies are resolved.

Goldman Sachs 2013 Form 10-K 65
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The table below presents the operating results of our Investment Management segment.

Year Ended December
in millions 2013 2012 2011

Management and other fees

$4,386 $4,105 $4,188

Incentive fees

662 701 323

Transaction revenues

415 416 523

Total net revenues

5,463 5,222 5,034

Operating expenses

4,354 4,294 4,020

Pre-tax earnings

$1,109 $   928 $1,014

The tables below present our period-end assets under supervision (AUS) by asset class and by distribution channel, as well as a summary of the changes in our assets under supervision.

As of December
in billions 2013 2012 2011

Assets under management

$   919 $   854 $   828

Other client assets

123 111 67

Total AUS

$1,042 $   965 $   895

Asset Class

Alternative investments  1

$   142 $   151 $   148

Equity

208 153 147

Fixed income

446 411 353

Long-term AUS

796 715 648

Liquidity products

246 250 247

Total AUS

$1,042 $   965 $   895

Distribution Channel

Directly distributed:

Institutional

$   363 $   343 $   294

High-net-worth individuals

330 294 274

Third-party distributed:

Institutional, high-net-worth individuals and retail

349 328 327

Total AUS

$1,042 $   965 $   895

1.

Primarily includes hedge funds, credit funds, private equity, real estate, currencies, commodities and asset allocation strategies.

Year Ended December
in billions 2013 2012 2011

Balance, beginning of year

$   965 $895 $917

Net inflows/(outflows)

Alternative investments

(13 1 (1

Equity

13 (17 (5

Fixed income

41 34 (9

Long-term AUS net inflows/(outflows)

41  1 18  2 (15 )  3

Liquidity products

(4 3 (12

Total AUS net inflows/(outflows)

37 21 (27

Net market appreciation/(depreciation)

40 49 5

Balance, end of year

$1,042 $965 $895

1.

Fixed income flows for 2013 include $10 billion in assets managed by the firm related to our Americas reinsurance business, in which a majority stake was sold in April 2013, that were previously excluded from assets under supervision as they were assets of a consolidated subsidiary.

2.

Includes $34 billion of fixed income asset inflows in connection with our acquisition of Dwight Asset Management Company LLC and $5 billion of fixed income and equity asset outflows related to our liquidation of Goldman Sachs Asset Management Korea Co., Ltd.

3.

Includes $6 billion of asset inflows across all asset classes in connection with our acquisitions of Goldman Sachs Australia Pty Ltd and Benchmark Asset Management Company Private Limited.

The table below presents our average monthly assets under supervision by asset class.

Average for the

Year Ended December

in billions 2013 2012 2011

Alternative investments

$   145 $149 $152

Equity

180 153 162

Fixed income

425 384 353

Long-term AUS

750 686 667

Liquidity products

235 238 240

Total AUS

$   985 $924 $907

66 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

2013 versus 2012. Net revenues in Investment Management were $5.46 billion for 2013, 5% higher than 2012, reflecting higher management and other fees, primarily due to higher average assets under supervision. During the year, total assets under supervision increased $77 billion to $1.04 trillion. Long-term assets under supervision increased $81 billion, including net inflows of $41 billion  1 , reflecting inflows in fixed income and equity assets, partially offset by outflows in alternative investment assets. Net market appreciation of $40 billion during the year was primarily in equity assets. Liquidity products decreased $4 billion.

During 2013, Investment Management operated in an environment generally characterized by improved asset prices, particularly in equities, resulting in appreciation in the value of client assets. In addition, the mix of average assets under supervision shifted slightly compared with 2012 from liquidity products to long-term assets under supervision, primarily due to growth in equity and fixed income assets. In the future, if asset prices were to decline, or investors favor asset classes that typically generate lower fees or investors withdraw their assets, net revenues in Investment Management would likely be negatively impacted. In addition, continued concerns about the global economic outlook could result in downward pressure on assets under supervision.

Operating expenses were $4.35 billion for 2013, up slightly compared to 2012, due to increased compensation and benefits expenses, primarily resulting from higher net revenues. Pre-tax earnings were $1.11 billion in 2013, 20% higher than 2012.

2012 versus 2011. Net revenues in Investment Management were $5.22 billion for 2012, 4% higher than 2011, due to significantly higher incentive fees, partially offset by lower transaction revenues and slightly lower management and other fees. During 2012, assets under supervision increased $70 billion to $965 billion. Long-term assets under supervision increased $67 billion, including net inflows of $18 billion 2 , reflecting inflows in fixed income assets, partially offset by outflows in equity assets. Net market appreciation of $49 billion during 2012 was primarily in fixed income and equity assets. In addition, liquidity products increased $3 billion.

During 2012, Investment Management operated in an environment generally characterized by improved asset prices, resulting in appreciation in the value of client assets. However, the mix of average assets under supervision shifted slightly from asset classes that typically generate higher fees, primarily equity and alternative investment assets, to asset classes that typically generate lower fees, primarily fixed income assets, compared with 2011.

Operating expenses were $4.29 billion for 2012, 7% higher than 2011, due to increased compensation and benefits expenses. Pre-tax earnings were $928 million in 2012, 8% lower than 2011.

Geographic Data

See Note 25 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for a summary of our total net revenues, pre-tax earnings and net earnings by geographic region.

Regulatory Developments

Our businesses are subject to significant and evolving regulation. The U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), enacted in July 2010, significantly altered the financial regulatory regime within which we operate. In addition, other reforms have been adopted or are being considered by other regulators and policy makers worldwide. The Dodd-Frank Act and these other reforms may affect our businesses. We expect that the principal areas of impact from regulatory reform for us will be increased regulatory capital requirements and increased regulation and restriction on certain activities. However, given that many of the new and proposed rules are highly complex, the full impact of regulatory reform will not be known until the rules are implemented and market practices develop under the final regulations.

See "Business - Regulation" in Part I, Item 1 of the 2013 Form 10-K for more information on the laws, rules and regulations and proposed laws, rules and regulations that apply to us and our operations. In addition, see "Equity Capital - Revised Capital Framework" below and Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for information about regulatory developments as they relate to our regulatory capital, leverage and liquidity ratios.

Impact of Increased Regulation and Restriction on Certain Activities

There has been increased regulation of, and limitations on, our activities, including the Dodd-Frank prohibition on "proprietary trading" and the limitation on the sponsorship of, and investment in covered funds (as defined in the Volcker Rule). In addition, there are increased regulation of, and restrictions on, over-the-counter (OTC) derivatives markets and transactions, particularly related to swaps and security-based swaps.

1.

Fixed income flows for 2013 include $10 billion in assets managed by the firm related to our Americas reinsurance business, in which a majority stake was sold in April 2013, that were previously excluded from assets under supervision as they were assets of a consolidated subsidiary.

2.

Includes $34 billion of fixed income asset inflows in connection with our acquisition of Dwight Asset Management Company LLC and $5 billion of fixed income and equity asset outflows related to our liquidation of Goldman Sachs Asset Management Korea Co., Ltd.

Goldman Sachs 2013 Form 10-K 67
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Volcker Rule. In December 2013, the final rules to implement the provisions of the Dodd-Frank Act referred to as the "Volcker Rule" were adopted. We are required to be in compliance with the rule (including the development of an extensive compliance program) by July 2015 with certain provisions of the rule subject to possible extensions through July 2017.

The Volcker rule prohibits "proprietary trading," but will allow activities such as underwriting, market making and risk-mitigation hedging. In anticipation of the final rule, we evaluated this prohibition and determined that businesses that engage in "bright line" proprietary trading were most likely to be prohibited. In 2010 and 2011, we liquidated substantially all of our Global Macro Proprietary and Principal Strategies trading positions.

Based on what we know as of the date of this filing, we do not expect the impact of the prohibition of proprietary trading to be material to our financial condition, results of operations or cash flows. However, the rule is highly complex, and its impact will not be known until market practices are fully developed.

In addition to the prohibition on proprietary trading, the Volcker rule limits the sponsorship of, and investment in, "covered funds" (as defined in the rule) by banking entities, including Group Inc. and its subsidiaries. It also limits certain types of transactions between us and our sponsored funds, similar to the limitations on transactions between depository institutions and their affiliates as described below under "- Transactions with Affiliates." Covered funds include our private equity funds, certain of our credit and real estate funds, and our hedge funds. The limitation on investments in covered funds requires us to reduce our investment in each such fund to 3% or less of the fund's net asset value, and to reduce our aggregate investment in all such funds to 3% or less of our Tier 1 capital. In anticipation of the final rule, we limited our initial investment in certain new covered funds to 3% of the fund's net asset value.

We continue to manage our existing funds, taking into account the transition periods under the Volcker Rule. As a result, in March 2012, we began redeeming certain interests in our hedge funds and will continue to do so.

For certain of our covered funds, in order to be compliant with the Volcker Rule by the prescribed compliance date, to the extent that the underlying investments of the particular funds are not sold, the firm may be required to sell its investments in such funds. If that occurs, the firm may receive a value for its investments that is less than the then carrying value as there could be a limited secondary market for these investments and the firm may be unable to sell them in orderly transactions.

Although our net revenues from investments in our private equity, credit, real estate and hedge funds may vary from period to period, our aggregate net revenues from these investments were not material to our aggregate total net revenues over the period from 1999 through 2013.

Swap Dealers and Derivatives Regulation. The Dodd-Frank Act also provides for significantly increased regulation of and restrictions on derivative markets, and we have registered certain subsidiaries as "swap dealers" under the U.S. Commodity Futures Trading Commission (CFTC) rules. See "Business - Regulation" in Part I, Item 1 of the 2013 Form 10-K for a discussion of the requirements imposed by the Dodd-Frank and the status of SEC and CFTC rulemaking, as well as non-U.S. regulation, in this area. The full application of new derivatives rules across different national and regulatory jurisdictions has not yet been fully established.

68 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Balance Sheet and Funding Sources

Balance Sheet Management

One of our most important risk management disciplines is our ability to manage the size and composition of our balance sheet. While our asset base changes due to client activity, market fluctuations and business opportunities, the size and composition of our balance sheet reflect (i) our overall risk tolerance, (ii) our ability to access stable funding sources and (iii) the amount of equity capital we hold.

Although our balance sheet fluctuates on a day-to-day basis, our total assets at quarterly and year-end dates are generally not materially different from those occurring within our reporting periods.

In order to ensure appropriate risk management, we seek to maintain a liquid balance sheet and have processes in place to dynamically manage our assets and liabilities which include:

Ÿ

quarterly planning;

Ÿ

business-specific limits;

Ÿ

monitoring of key metrics; and

Ÿ

scenario analyses.

Quarterly Planning. We prepare a quarterly balance sheet plan that combines our projected total assets and composition of assets with our expected funding sources and capital levels for the upcoming quarter. The objectives of this quarterly planning process are:

Ÿ

to develop our near-term balance sheet projections, taking into account the general state of the financial markets and expected business activity levels;

Ÿ

to ensure that our projected assets are supported by an adequate amount and tenor of funding and that our projected capital and liquidity metrics are within management guidelines and regulatory requirements; and

Ÿ

to allow business risk managers and managers from our independent control and support functions to objectively evaluate balance sheet limit requests from business managers in the context of the firm's overall balance sheet constraints. These constraints include the firm's liability profile and equity capital levels, maturities and plans for new debt and equity issuances, share repurchases, deposit trends and secured funding transactions.

To prepare our quarterly balance sheet plan, business risk managers and managers from our independent control and support functions meet with business managers to review current and prior period metrics and discuss expectations for the upcoming quarter. The specific metrics reviewed include asset and liability size and composition, aged inventory, limit utilization, risk and performance measures, and capital usage.

Our consolidated quarterly plan, including our balance sheet plans by business, funding and capital projections, and projected capital and liquidity metrics, is reviewed by the Firmwide Finance Committee. See "Overview and Structure of Risk Management" for an overview of our risk management structure.

Goldman Sachs 2013 Form 10-K 69
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Business-Specific Limits. The Firmwide Finance Committee sets asset and liability limits for each business and aged inventory limits for certain financial instruments as a disincentive to hold inventory over longer periods of time. These limits are set at levels which are generally close to actual operating levels in order to ensure prompt escalation and discussion among business managers and managers in our independent control and support functions on a routine basis. The Firmwide Finance Committee reviews and approves balance sheet limits on a quarterly basis and may also approve changes in limits on an ad hoc basis in response to changing business needs or market conditions.

Monitoring of Key Metrics. We monitor key balance sheet metrics daily both by business and on a consolidated basis, including asset and liability size and composition, aged inventory, limit utilization, risk measures and capital usage. We allocate assets to businesses and review and analyze movements resulting from new business activity as well as market fluctuations.

Scenario Analyses. We conduct scenario analyses to determine how we would manage the size and composition of our balance sheet and maintain appropriate funding, liquidity and capital positions in a variety of situations:

Ÿ

These scenarios cover short-term and long-term time horizons using various macroeconomic and firm-specific assumptions. We use these analyses to assist us in developing longer-term funding plans, including the level of unsecured debt issuances, the size of our secured funding program and the amount and composition of our equity capital. We also consider any potential future constraints, such as limits on our ability to grow our asset base in the absence of appropriate funding.

Ÿ

Through our capital planning and stress testing process, which incorporates our internally designed stress tests and those required under the CCAR and Dodd-Frank Act Stress Tests (DFAST) as well as our resolution and recovery planning, we further analyze how we would manage our balance sheet and risks through the duration of a severe crisis, and we develop plans to access funding, generate liquidity, and/or redeploy or issue equity capital, as appropriate.

Balance Sheet Allocation

In addition to preparing our consolidated statements of financial condition in accordance with U.S. GAAP, we prepare a balance sheet that generally allocates assets to our businesses, which is a non-GAAP presentation and may not be comparable to similar non-GAAP presentations used by other companies. We believe that presenting our assets on this basis is meaningful because it is consistent with the way management views and manages risks associated with the firm's assets and better enables investors to assess the liquidity of the firm's assets.

Below is a description of the captions in the following table, which presents this balance sheet allocation.

Excess Liquidity and Cash. We maintain substantial excess liquidity to meet a broad range of potential cash outflows and collateral needs in the event of a stressed environment. See "Liquidity Risk Management" below for details on the composition and sizing of our excess liquidity pool or "Global Core Excess" (GCE). In addition to our excess liquidity, we maintain other operating cash balances, primarily for use in specific currencies, entities, or jurisdictions where we do not have immediate access to parent company liquidity.

Secured Client Financing. We provide collateralized financing for client positions, including margin loans secured by client collateral, securities borrowed, and resale agreements primarily collateralized by government obligations. As a result of client activities, we are required to segregate cash and securities to satisfy regulatory requirements. Our secured client financing arrangements, which are generally short-term, are accounted for at fair value or at amounts that approximate fair value, and include daily margin requirements to mitigate counterparty credit risk.

70 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Institutional Client Services. In Institutional Client Services, we maintain inventory positions to facilitate market-making in fixed income, equity, currency and commodity products. Additionally, as part of market-making activities, we enter into resale or securities borrowing arrangements to obtain securities which we can use to cover transactions in which we or our clients have sold securities that have not yet been purchased. The receivables in Institutional Client Services primarily relate to securities transactions.

Investing & Lending. In Investing & Lending, we make investments and originate loans to provide financing to clients. These investments and loans are typically longer-term in nature. We make investments, directly and indirectly through funds that we manage, in debt securities, loans, public and private equity securities, real estate entities and other investments.

Other Assets. Other assets are generally less liquid, non-financial assets, including property, leasehold improvements and equipment, goodwill and identifiable intangible assets, income tax-related receivables, equity-method investments, assets classified as held for sale and miscellaneous receivables.

As of December
in millions 2013 2012

Excess liquidity (Global Core Excess)

$184,070 $174,622

Other cash

5,793 6,839

Excess liquidity and cash

189,863 181,461

Secured client financing

263,386 229,442

Inventory

255,534 318,323

Secured financing agreements

79,635 76,277

Receivables

39,557 36,273

Institutional Client Services

374,726 430,873

Public equity  1

4,308 5,948

Private equity

16,236 17,401

Debt  2

23,274 25,386

Receivables and other  3

17,205 8,421

Investing & Lending

61,023 57,156

Total inventory and related assets

435,749 488,029

Other assets

22,509 39,623  4

Total assets

$911,507 $938,555

1.

December 2012 includes $2.08 billion related to our investment in the ordinary shares of ICBC, which was sold in the first half of 2013.

2.

Includes $15.76 billion and $16.50 billion as of December 2013 and December 2012, respectively, of direct loans primarily extended to corporate and private wealth management clients that are accounted for at fair value.

3.

Includes $14.90 billion and $6.50 billion as of December 2013 and December 2012, respectively, of loans held for investment that are accounted for at amortized cost, net of estimated uncollectible amounts. Such loans are primarily comprised of corporate loans and loans to private wealth management clients.

4.

Includes assets related to our Americas reinsurance business classified as held for sale, in which a majority stake was sold in April 2013. See Note 12 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information.

Goldman Sachs 2013 Form 10-K 71
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The tables below present the reconciliation of this balance sheet allocation to our U.S. GAAP balance sheet. In the tables below, total assets for Institutional Client Services and Investing & Lending represent the inventory and related assets. These amounts differ from total assets by

business segment disclosed in Note 25 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K because total assets disclosed in Note 25 include allocations of our excess liquidity and cash, secured client financing and other assets.

As of December 2013
in millions
Excess
Liquidity
and Cash

 1

Secured
Client
Financing


Institutional
Client
Services


Investing &
Lending


Other
Assets


Total
Assets

Cash and cash equivalents

$  61,133 $          - $          - $        - $        - $  61,133

Cash and securities segregated for regulatory and other purposes

- 49,671 - - - 49,671

Securities purchased under agreements to resell and federal funds sold

64,595 61,510 35,081 546 - 161,732

Securities borrowed

25,113 94,899 44,554 - - 164,566

Receivables from brokers, dealers and clearing organizations

- 6,650 17,098 92 - 23,840

Receivables from customers and counterparties

- 50,656 22,459 15,820 - 88,935

Financial instruments owned, at fair value

39,022 - 255,534 44,565 - 339,121

Other assets

- - - - 22,509 22,509

Total assets

$189,863 $263,386 $374,726 $61,023 $22,509 $911,507
As of December 2012
in millions
Excess
Liquidity
and Cash

 1

Secured
Client
Financing


Institutional
Client
Services


Investing &
Lending


Other
Assets


Total
Assets

Cash and cash equivalents

$  72,669 $          - $          - $        - $        - $  72,669

Cash and securities segregated for regulatory and other purposes

- 49,671 - - - 49,671

Securities purchased under agreements to resell and federal funds sold

28,018 84,064 28,960 292 - 141,334

Securities borrowed

41,699 47,877 47,317 - - 136,893

Receivables from brokers, dealers and clearing organizations

- 4,400 14,044 36 - 18,480

Receivables from customers and counterparties

- 43,430 22,229 7,215 - 72,874

Financial instruments owned, at fair value

39,075 - 318,323 49,613 - 407,011

Other assets

- - - - 39,623 39,623

Total assets

$181,461 $229,442 $430,873 $57,156 $39,623 $938,555

1.

Includes unencumbered cash, U.S. government and federal agency obligations (including highly liquid U.S. federal agency mortgage-backed obligations), and German, French, Japanese and United Kingdom government obligations.

As of December 2013, total assets decreased $27.05 billion from December 2012 due to a decrease in assets related to institutional client services and other assets, partially offset by an increase in secured client financing and excess liquidity and cash. Assets related to institutional client services decreased $56.15 billion primarily due to a decrease in financial instruments owned, at fair value as a result of decreases in U.S. government and federal agency obligations, non-U.S. government and agency obligations,

derivatives and commodities. In addition, other assets decreased $17.11 billion primarily due to the sale of a majority stake in our Americas reinsurance business in April 2013. Secured client financing increased $33.94 billion reflecting an increase in collateralized agreements, primarily due to an increase in client activity. Excess liquidity and cash also increased $8.40 billion reflecting an increase in collateralized agreements, partially offset by a decrease in cash and cash equivalents.

72 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Balance Sheet Analysis and Metrics

As of December 2013, total assets on our consolidated statements of financial condition were $911.51 billion, a decrease of $27.05 billion from December 2012. This decrease was primarily due to a decrease in financial instruments owned, at fair value of $67.89 billion, primarily due to decreases in U.S. government and federal agency obligations, non-U.S. government and agency obligations, derivatives and commodities, and a decrease in other assets of $17.11 billion, primarily due to the sale of a majority stake in our Americas reinsurance business in April 2013. These decreases were partially offset by an increase in collateralized agreements of $48.07 billion, due to firm and client activity.

As of December 2013, total liabilities on our consolidated statements of financial condition were $833.04 billion, a decrease of $29.80 billion from December 2012. This decrease was primarily due to a decrease in other liabilities and accrued expenses of $26.35 billion, primarily due to the sale of a majority stake in both our Americas reinsurance business in April 2013 and our European insurance business in December 2013, and a decrease in collateralized financings of $9.24 billion, primarily due to firm financing activities. This decrease was partially offset by an increase in payables to customers and counterparties of $10.21 billion.

As of December 2013, our total securities sold under agreements to repurchase, accounted for as collateralized financings, were $164.78 billion, which was 5% higher and 4% higher than the daily average amount of repurchase agreements during the quarter ended and year ended December 2013, respectively. The increase in our repurchase agreements relative to the daily average during 2013 was primarily due to an increase in client activity at the end of the period. As of December 2012, our total securities sold under agreements to repurchase, accounted for as collateralized financings, were $171.81 billion, which was essentially unchanged and 3% higher than the daily average amount of repurchase agreements during the quarter ended and year ended December 2012, respectively. The increase in our repurchase agreements relative to the daily average during 2012 was primarily due to an increase in firm financing activities at the end of the period. The level of our repurchase agreements fluctuates between and within periods, primarily due to providing clients with access to highly liquid collateral, such as U.S. government and federal agency, and investment-grade sovereign obligations through collateralized financing activities.

The table below presents information on our assets, unsecured long-term borrowings, shareholders' equity and leverage ratios.

As of December
$ in millions 2013 2012

Total assets

$911,507 $938,555

Unsecured long-term borrowings

$160,965 $167,305

Total shareholders' equity

$  78,467 $  75,716

Leverage ratio

11.6x 12.4x

Debt to equity ratio

2.1x 2.2x

Leverage ratio. The leverage ratio equals total assets divided by total shareholders' equity and measures the proportion of equity and debt the firm is using to finance assets. This ratio is different from the Tier 1 leverage ratio included in "Equity Capital - Consolidated Regulatory Capital Ratios" below, and further described in Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K.

Debt to equity ratio. The debt to equity ratio equals unsecured long-term borrowings divided by total shareholders' equity.

Goldman Sachs 2013 Form 10-K 73
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Funding Sources

Our primary sources of funding are secured financings, unsecured long-term and short-term borrowings, and deposits. We seek to maintain broad and diversified funding sources globally across products, programs, markets, currencies and creditors to avoid funding concentrations.

We raise funding through a number of different products, including:

Ÿ

collateralized financings, such as repurchase agreements, securities loaned and other secured financings;

Ÿ

long-term unsecured debt (including structured notes) through syndicated U.S. registered offerings, U.S. registered and Rule 144A medium-term note programs, offshore medium-term note offerings and other debt offerings;

Ÿ

savings and demand deposits through deposit sweep programs and time deposits through internal and third-party broker-dealers; and

Ÿ

short-term unsecured debt through U.S. and non-U.S. hybrid financial instruments, commercial paper and promissory note issuances and other methods.

Our funding is primarily raised in U.S. dollar, Euro, British pound and Japanese yen. We generally distribute our funding products through our own sales force and third-party distributors to a large, diverse creditor base in a variety of markets in the Americas, Europe and Asia. We believe that our relationships with our creditors are critical to our liquidity. Our creditors include banks, governments, securities lenders, pension funds, insurance companies, mutual funds and individuals. We have imposed various internal guidelines to monitor creditor concentration across our funding programs.

Secured Funding. We fund a significant amount of inventory on a secured basis. Secured funding is less sensitive to changes in our credit quality than unsecured funding, due to our posting of collateral to our lenders. Nonetheless, we continually analyze the refinancing risk of our secured funding activities, taking into account trade tenors, maturity profiles, counterparty concentrations, collateral eligibility and counterparty rollover probabilities. We seek to mitigate our refinancing risk by executing term trades with staggered maturities, diversifying counterparties, raising excess secured funding, and pre-funding residual risk through our GCE.

We seek to raise secured funding with a term appropriate for the liquidity of the assets that are being financed, and we seek longer maturities for secured funding collateralized by asset classes that may be harder to fund on a secured basis especially during times of market stress. Substantially all of our secured funding, excluding funding collateralized by liquid government obligations, is executed for tenors of one month or greater. Assets that may be harder to fund on a secured basis during times of market stress include certain financial instruments in the following categories: mortgage and other asset-backed loans and securities, non-investment grade corporate debt securities, equities and convertible debentures and emerging market securities. Assets that are classified as level 3 in the fair value hierarchy are generally funded on an unsecured basis. See Notes 5 and 6 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about the classification of financial instruments in the fair value hierarchy and "- Unsecured Long-Term Borrowings" below for further information about the use of unsecured long-term borrowings as a source of funding.

74 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The weighted average maturity of our secured funding, excluding funding collateralized by highly liquid securities eligible for inclusion in our GCE, exceeded 100 days as of December 2013.

A majority of our secured funding for securities not eligible for inclusion in the GCE is executed through term repurchase agreements and securities lending contracts. We also raise financing through other types of collateralized financings, such as secured loans and notes.

GS Bank USA has access to funding through the Federal Reserve Bank discount window. While we do not rely on this funding in our liquidity planning and stress testing, we maintain policies and procedures necessary to access this funding and test discount window borrowing procedures.

Unsecured Long-Term Borrowings. We issue unsecured long-term borrowings as a source of funding for inventory and other assets and to finance a portion of our GCE. We issue in different tenors, currencies and products to maximize the diversification of our investor base. The table below presents our quarterly unsecured long-term borrowings maturity profile through the fourth quarter of 2019 as of December 2013.

The weighted average maturity of our unsecured long-term borrowings as of December 2013 was approximately eight years. To mitigate refinancing risk, we seek to limit the principal amount of debt maturing on any one day or during any week or year. We enter into interest rate swaps to convert a substantial portion of our long-term

borrowings into floating-rate obligations in order to manage our exposure to interest rates. See Note 16 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about our unsecured long-term borrowings.

Goldman Sachs 2013 Form 10-K 75
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Deposits. As part of our efforts to diversify our funding base, deposits have become a more meaningful share of our funding activities mainly through GS Bank USA and Goldman Sachs International Bank (GSIB). The table below presents the type and sources of our deposits.

As of December 2013
Type of Deposit
in millions Savings and Demand 1 Time 2

Private bank deposits  3

$30,475 $     212

Certificates of deposit

- 19,709

Deposit sweep programs  4

15,511 -

Institutional

33 4,867

Total  5

$46,019 $24,788

1.

Represents deposits with no stated maturity.

2.

Weighted average maturity of approximately three years.

3.

Substantially all were from overnight deposit sweep programs related to private wealth management clients.

4.

Represents long-term contractual agreements with several U.S. broker-dealers who sweep client cash to FDIC-insured deposits.

5.

Deposits insured by the FDIC as of December 2013 were approximately $41.22 billion.

Unsecured Short-Term Borrowings. A significant portion of our short-term borrowings was originally long-term debt that is scheduled to mature within one year of the reporting date. We use short-term borrowings to finance liquid assets and for other cash management purposes. We issue hybrid financial instruments, commercial paper and promissory notes.

As of December 2013, our unsecured short-term borrowings, including the current portion of unsecured long-term borrowings, were $44.69 billion. See Note 15 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about our unsecured short-term borrowings.

Equity Capital

Capital adequacy is of critical importance to us. Our objective is to be conservatively capitalized in terms of the amount and composition of our equity base, both relative to our risk exposures and compared to external requirements and benchmarks. Accordingly, we have in place a comprehensive capital management policy that provides a framework and set of guidelines to assist us in determining the level and composition of capital that we target and maintain.

We determine the appropriate level and composition of our equity capital by considering multiple factors including our current and future consolidated regulatory capital requirements, the results of our capital planning and stress testing process and other factors such as rating agency guidelines, subsidiary capital requirements, the business environment, conditions in the financial markets, and assessments of potential future losses due to adverse changes in our business and market environments. Our capital planning and stress testing process incorporates our internally designed stress tests and those required under CCAR and DFAST, and is also designed to identify and measure material risks associated with our business activities, including market risk, credit risk and operational risk. We project sources and uses of capital given a range of business environments, including stressed conditions. In addition, as part of our comprehensive capital management policy, we maintain a contingency capital plan that provides a framework for analyzing and responding to an actual or perceived capital shortfall.

As required by the Federal Reserve Board's annual CCAR guidelines, U.S. bank holding companies with total consolidated assets of $50 billion or greater submit capital plans for review by the Federal Reserve Board. The purpose of the Federal Reserve Board's review is to ensure that these institutions have a robust, forward-looking capital planning process that accounts for their unique risks and that permits continued operations during times of economic and financial stress.

76 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The Federal Reserve Board evaluates a bank holding company based, in part, on whether it has the capital necessary to continue operating under the baseline and stress scenarios provided by the Federal Reserve Board and under the scenarios developed by the bank holding company. This evaluation also takes into account a bank holding company's process for identifying risk, its controls and governance for capital planning, and its guidelines for making capital planning decisions. In addition, as part of its review, the Federal Reserve Board evaluates a bank holding company's plan to make capital distributions (i.e., dividend payments, repurchases or redemptions of stock, subordinated debt or other capital securities) across a range of macroeconomic scenarios and firm-specific assumptions. Additionally, the Federal Reserve Board evaluates a bank holding company's plan to issue capital.

In addition, the DFAST rules require us to conduct stress tests on a semi-annual basis and publish a summary of certain results. The annual DFAST submission is incorporated into the CCAR submission. The Federal Reserve Board also conducts its own annual stress tests and publishes a summary of certain results.

As part of our initial 2013 CCAR submission, the Federal Reserve Board informed us that it did not object to our proposed capital actions, including the repurchase of outstanding common stock, a potential increase in our quarterly common stock dividend and the possible issuance, redemption and modification of other capital securities through the first quarter of 2014. As required by the Federal Reserve Board, we resubmitted our 2013 capital plan in September 2013, incorporating certain enhancements to our stress testing process. In December 2013, the Federal Reserve Board informed us that it did not object to our resubmitted capital plan. We submitted our 2014 CCAR to the Federal Reserve in January 2014 and expect to publish a summary of our annual DFAST results in March 2014. See "Business -Available Information" in Part I, Item 1 of the 2013 Form 10-K.

In addition, we submitted the results of our mid-cycle DFAST to the Federal Reserve Board in July 2013 and published a summary of our mid-cycle DFAST results under our internally developed severely adverse scenario in September 2013. Our internally developed severely adverse scenario is designed to stress the firm's risks and idiosyncratic vulnerabilities and assess the firm's pro-forma capital position and ratios under the hypothetical stressed

environment. We provide additional information on our internal stress testing process, our internally developed severely adverse scenario used for mid-cycle DFAST and a summary of the results on our web site as described under "Business - Available Information" in Part I, Item 1 of the 2013 Form 10-K.

Our consolidated regulatory capital requirements are determined by the Federal Reserve Board, as described below.

As of December 2013, our total shareholders' equity was $78.47 billion (consisting of common shareholders' equity of $71.27 billion and preferred stock of $7.20 billion). As of December 2012, our total shareholders' equity was $75.72 billion (consisting of common shareholders' equity of $69.52 billion and preferred stock of $6.20 billion). See "- Consolidated Regulatory Capital Ratios" below for information regarding the impact of regulatory developments.

Consolidated Regulatory Capital

The Federal Reserve Board is the primary regulator of Group Inc., a bank holding company under the Bank Holding Company Act of 1956 (BHC Act) and a financial holding company under amendments to the BHC Act effected by the U.S. Gramm-Leach-Bliley Act of 1999. As a bank holding company, we are subject to consolidated risk-based regulatory capital requirements. These requirements are computed in accordance with the Federal Reserve Board's risk-based capital regulations which, as of December 2013, were based on the Basel I Capital Accord of the Basel Committee and also reflected the Federal Reserve Board's revised market risk regulatory capital requirements which became effective on January 1, 2013. These capital requirements are expressed as capital ratios that compare measures of capital to risk-weighted assets (RWAs). The capital regulations also include requirements with respect to leverage. The firm's capital levels are also subject to qualitative judgments by its regulators about components of capital, risk weightings and other factors. Beginning January 1, 2014, the Federal Reserve Board implemented revised consolidated regulatory capital and leverage requirements.

See Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for additional information regarding the firm's current RWAs, required minimum capital ratios and the Revised Capital Framework (defined below).

Goldman Sachs 2013 Form 10-K 77
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Consolidated Regulatory Capital Ratios

The table below presents information about our regulatory capital ratios and Tier 1 leverage ratio under Basel I, as implemented by the Federal Reserve Board. The information as of December 2013 reflects the revised market risk regulatory capital requirements. The information as of December 2012 is prior to the implementation of these revised market risk regulatory capital requirements. In the table below:

Ÿ

Equity investments in certain entities primarily represent a portion of our nonconsolidated equity investments.

Ÿ

Disallowed deferred tax assets represent certain deferred tax assets that are excluded from regulatory capital based upon an assessment which, in addition to other factors, includes an estimate of future taxable income.

Ÿ

Debt valuation adjustment represents the cumulative change in the fair value of our unsecured borrowings attributable to the impact of changes in our own credit spreads (net of tax at the applicable tax rate).

Ÿ

Other adjustments within our Tier 1 common capital include net unrealized gains/(losses) on available-for-sale securities (net of tax at the applicable tax rate), the cumulative change in our pension and postretirement liabilities (net of tax at the applicable tax rate) and investments in certain nonconsolidated entities.

Ÿ

Qualifying subordinated debt represents subordinated debt issued by Group Inc. with an original term to maturity of five years or greater. The outstanding amount of subordinated debt qualifying for Tier 2 capital is reduced, or discounted, upon reaching a remaining maturity of five years. See Note 16 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for additional information about our subordinated debt.

As of December

$ in millions 2013 2012

Common shareholders' equity

$  71,267 $  69,516

Goodwill

(3,705 (3,702

Identifiable intangible assets

(671 (1,397

Equity investments in certain entities

(3,314 (4,805

Disallowed deferred tax assets

(498 (1,261

Debt valuation adjustment

10 (180

Other adjustments

159 (124

Tier 1 Common Capital

63,248 58,047

Perpetual non-cumulative preferred stock

7,200 6,200

Junior subordinated debt issued to trusts  1

2,063 2,750

Other adjustments

(40 (20

Tier 1 Capital

72,471 66,977

Qualifying subordinated debt

12,773 13,342

Junior subordinated debt issued to trusts  1

687 -

Other adjustments

172 87

Tier 2 Capital

13,632 13,429

Total Capital

$  86,103 $  80,406

Credit RWAs

$268,247 $287,526

Market RWAs

164,979 112,402

Total RWAs

$433,226 $399,928

Tier 1 Common Ratio  2

14.6 14.5

Tier 1 Capital Ratio

16.7 16.7

Total Capital Ratio

19.9 20.1

Tier 1 Leverage Ratio  3

8.1 7.3

1.

On January 1, 2013, we began to incorporate the Dodd-Frank Act's phase-out of regulatory capital treatment for junior subordinated debt issued to trusts by allowing for only 75% of these capital instruments to be included in Tier 1 capital and 25% to be designated as Tier 2 capital in the calculation of our current capital ratios. In July 2013, the Agencies finalized the phase-out provisions of these capital instruments. See Note 16 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for additional information about the junior subordinated debt issued to trusts.

2.

The Tier 1 common ratio equals Tier 1 common capital divided by RWAs. We believe that the Tier 1 common ratio is meaningful because it is one of the measures that we, our regulators and investors use to assess capital adequacy. The Tier 1 common ratio is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

3.

See Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for additional information about the firm's Tier 1 leverage ratio.

78 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Our Tier 1 capital ratio was 16.7%, unchanged compared with December 2012 primarily reflecting an increase in RWAs, offset by an increase in Tier 1 capital. The increase in RWAs was primarily driven by the implementation of the revised market risk regulatory capital requirements. These requirements are a significant part of the regulatory capital changes that will ultimately be reflected in our Basel III capital ratios.

The table below presents the changes in Tier 1 common capital, Tier 1 capital and Tier 2 capital during 2013 and 2012.

Year Ended
in millions
December
2013


December
2012

Tier 1 Common Capital

Balance, beginning of period

$58,047 $55,162

Increase in common shareholders' equity

1,751 2,237

(Increase)/decrease in goodwill

(3 100

Decrease in identifiable intangible assets

726 269

(Increase)/decrease in equity investments in certain entities

1,491 (249

(Increase)/decrease in disallowed deferred tax assets

763 (188

Change in debt valuation adjustment

190 484

Change in other adjustments

283 232

Balance, end of period

$63,248 $58,047

Tier 1 Capital

Balance, beginning of period

$66,977 $63,262

Net increase in Tier 1 common capital

5,201 2,885

Increase in perpetual non-cumulative preferred stock

1,000 3,100

Change in junior subordinated debt issued to trusts

- (2,250

Redesignation of junior subordinated debt issued to trusts

(687 -

Change in other adjustments

(20 (20

Balance, end of period

72,471 66,977

Tier 2 Capital

Balance, beginning of period

13,429 13,881

Decrease in qualifying subordinated debt

(569 (486

Redesignation of junior subordinated debt issued to trusts

687 -

Change in other adjustments

85 34

Balance, end of period

13,632 13,429

Total Capital

$86,103 $80,406

See "Business - Regulation" in Part I, Item 1 of the 2013 Form 10-K and Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for additional information about our regulatory capital ratios and related regulatory requirements, including pending and proposed regulatory changes.

Risk-Weighted Assets

RWAs under the Federal Reserve Board's risk-based capital requirements are calculated based on measures of credit risk and market risk.

RWAs for credit risk reflect amounts for on-balance-sheet and off-balance-sheet exposures. Credit risk requirements for on-balance-sheet assets, such as receivables and cash, are generally based on the balance sheet value. Credit risk requirements for securities financing transactions are determined based upon the positive net exposure for each trade, and include the effect of counterparty netting and collateral, as applicable. For off-balance-sheet exposures, including commitments and guarantees, a credit equivalent amount is calculated based on the notional amount of each trade. Requirements for OTC derivatives are based on a combination of positive net exposure and a percentage of the notional amount of each trade, and include the effect of counterparty netting and collateral, as applicable. All such assets and exposures are then assigned a risk weight depending on, among other things, whether the counterparty is a sovereign, bank or a qualifying securities firm or other entity (or if collateral is held, depending on the nature of the collateral).

As of December 2012, RWAs for market risk were determined by reference to the firm's Value-at-Risk (VaR) model, supplemented by the standardized measurement method used to determine RWAs for specific risk for certain positions. Under the Federal Reserve Board's revised market risk regulatory capital requirements, which became effective on January 1, 2013, the methodology for calculating RWAs for market risk was changed. RWAs for market risk are determined using VaR, stressed VaR, incremental risk, comprehensive risk and a standardized measurement method for specific risk.

Goldman Sachs 2013 Form 10-K 79
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

VaR is the potential loss in value of inventory positions, as well as certain other financial assets and financial liabilities, due to adverse market movements over a defined time horizon with a specified confidence level. For both risk management purposes and regulatory capital calculations we use a single VaR model which captures risks including interest rates, equity prices, currency rates and commodity prices. VaR used for regulatory capital requirements (regulatory VaR) differs from risk management VaR due to different time horizons and confidence levels (10-day and 99% for regulatory VaR vs. one-day and 95% for risk management VaR), as well as differences in the scope of positions on which VaR is calculated. Stressed VaR is the potential loss in value of inventory positions during a period of significant market stress. Incremental risk is the potential loss in value of non-securitized inventory positions due to the default or credit migration of issuers of financial instruments over a one-year time horizon. Comprehensive risk is the potential loss in value, due to price risk and defaults, within the firm's credit correlation positions. The standardized measurement method is used to determine RWAs for specific risk for certain positions by applying supervisory defined risk-weighting factors to such positions after applicable netting is performed.

We provide additional information on regulatory VaR, stressed VaR, incremental risk, comprehensive risk and the standardized measurement method for specific risk on our web site as described under "Business - Available Information" in Part I, Item 1 of the 2013 Form 10-K.

The table below presents information on the components of RWAs within our consolidated regulatory capital ratios, which were based on Basel I, as implemented by the Federal Reserve Board, and also reflected the revised market risk regulatory capital requirements.

in millions
As of
December
2013

Credit RWAs

OTC derivatives

$  94,753

Commitments and guarantees  1

47,397

Securities financing transactions  2

30,010

Other  3

96,087

Total Credit RWAs

268,247

Market RWAs

Regulatory VaR

13,425

Stressed VaR

38,250

Incremental risk

9,463

Comprehensive risk

18,150

Specific risk

85,691

Total Market RWAs

164,979

Total RWAs  4

$433,226

1.

Principally includes certain commitments to extend credit and letters of credit.

2.

Represents resale and repurchase agreements and securities borrowed and loaned transactions.

3.

Principally includes receivables from customers, certain loans, other assets, and cash and cash equivalents.

4.

Under the current regulatory capital framework, there is no explicit requirement for Operational risk.

80 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The table below presents the changes in these RWAs from December 31, 2012 to December 31, 2013.

in millions
Period Ended
December 2013

Risk-Weighted Assets

Balance, December 31, 2012

$399,928

Credit RWAs

Decrease in OTC derivatives

(12,516

Increase in commitments and guarantees

1,390

Decrease in securities financing transactions

(17,059

Change in other

8,906

Change in Credit RWAs

(19,279

Market RWAs

Increase related to the revised market risk rules

127,608

Decrease in regulatory VaR

(2,038

Decrease in stressed VaR

(13,700

Decrease in incremental risk

(17,350

Decrease in comprehensive risk

(9,568

Decrease in specific risk

(32,375

Change in Market RWAs

52,577

Total RWAs, end of period

$433,226

Credit RWAs decreased $19.28 billion compared with December 2012, primarily due to a decrease in securities financing exposure. Market RWAs increased by $52.58 billion compared with December 2012, reflecting the impact of the revised market risk regulatory capital requirements, which became effective on January 1, 2013, partially offset by, among other things, a decrease in specific risk due to a decrease in inventory.

We also attribute RWAs to our business segments. As of December 2013, approximately 80% of RWAs were attributed to our Institutional Client Services segment and substantially all of the remaining RWAs were attributed to our Investing & Lending segment.

Revised Capital Framework

The Agencies have approved revised risk-based capital and leverage ratio regulations establishing a new comprehensive capital framework for U.S. banking organizations (Revised Capital Framework). These regulations are largely based on the Basel Committee's December 2010 final capital framework for strengthening international capital standards (Basel III), and significantly revise the risk-based capital and leverage ratio requirements applicable to bank holding companies as compared to the previous U.S. risk-based capital and leverage ratio rules, and thereby, implement certain provisions of the Dodd-Frank Act.

Under the Revised Capital Framework, Group Inc. is an "Advanced approach" banking organization. See Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about the Revised Capital Framework, including the difference between the "Standardized approach" and the Basel III Advanced approach.

Estimated Capital Ratios. We estimate that the firm's ratio of Basel III Common Equity Tier 1 (CET1) to RWAs calculated under the Basel III Advanced approach (Basel III Advanced CET1 ratio) as of December 2013 would have been 9.8% on a fully phased-in basis (i.e., after the expiration of transition provisions). The estimate of the Basel III Advanced CET1 ratio will continue to evolve as we assess the details of these rules and discuss their interpretation and application with our regulators.

Management believes that the estimated Basel III Advanced CET1 ratio is meaningful because it is one of the measures that we, our regulators and investors use to assess capital adequacy. The estimated Basel III Advanced CET1 ratio is a non-GAAP measure as of December 2013 and may not be comparable to similar non-GAAP measures used by other companies (as of that date). It will become a formal regulatory measure for the firm on April 1, 2014.

Goldman Sachs 2013 Form 10-K 81
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The table below presents a reconciliation of our common shareholders' equity to the estimated Basel III Advanced CET1 on a fully phased-in basis.

$ in millions
As of
December
2013

Common shareholders' equity

$  71,267

Goodwill

(3,705

Identifiable intangible assets

(671

Deferred tax liabilities

908

Goodwill and identifiable intangible assets, net of deferred tax liabilities

(3,468

Deductions for investments in nonconsolidated financial institutions  1

(9,091

Other adjustments  2

(489

Basel III CET1

$  58,219

Basel III Advanced RWAs

$594,662

Basel III Advanced CET1 Ratio

9.8

1.

This deduction, which represents the fully phased-in requirement, is the amount by which our investments in the capital of nonconsolidated financial institutions exceed certain prescribed thresholds. During both the transitional period and thereafter, no deduction will be required if the applicable proportion of our investments in the capital of nonconsolidated financial institutions falls below the prescribed thresholds.

2.

Principally includes credit valuation adjustments on derivative liabilities and debt valuation adjustments, as well as other required credit risk-based deductions.

In addition, beginning with the first quarter of 2015, subject to transitional provisions, we will also be required to disclose ratios calculated under the Standardized approach. Our estimated CET1 ratio under the Standardized approach (Standardized CET1 ratio) on a fully phased-in basis was approximately 60 basis points lower than our estimated Basel III Advanced CET1 ratio in the table above.

Both the Basel III Advanced CET1 ratio and the Standardized CET1 ratio are subject to transitional provisions. Reflecting the transitional provisions that became effective January 1, 2014, our estimated Basel III Advanced CET1 ratio and our estimated Standardized CET1 ratio are approximately 150 basis points higher than the respective CET1 ratios on a fully phased-in basis as of December 2013.

Effective January 1, 2014, Group Inc.'s capital and leverage ratios are calculated under, and subject to the minimums as defined in, the Revised Capital Framework. The changes to the definition of capital and minimum ratios, subject to transitional provisions, were effective beginning January 1, 2014. RWAs are based on Basel I Adjusted, as defined in Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K. The firm will transition to Basel III beginning on April 1, 2014. Including the impact of the changes to the definition of regulatory capital and reflecting the transitional provisions effective in 2014, our estimated CET1 ratio (CET1 to RWAs on a Basel I Adjusted basis) as of December 2013 would have been essentially unchanged as compared to our Tier 1 common ratio under Basel I.

Regulatory Leverage Ratios. The Revised Capital Framework increased the minimum Tier 1 leverage ratio applicable to us from 3% to 4% effective January 1, 2014.

In addition, the Revised Capital Framework will introduce a new Tier 1 supplementary leverage ratio (supplementary leverage ratio) for Advanced approach banking organizations. The supplementary leverage ratio compares Tier 1 capital (as defined under the Revised Capital Framework) to a measure of leverage exposure, defined as the sum of the firm's assets less certain CET1 deductions plus certain off-balance-sheet exposures, including a measure of derivatives exposures and commitments. The Revised Capital Framework requires a minimum supplementary leverage ratio of 3%, effective January 1, 2018, but with disclosure required beginning in the first quarter of 2015. In addition, subsequent to the approval of the Revised Capital Framework, the Agencies issued a proposal to increase the minimum supplementary leverage ratio requirement for the largest U.S. banks (those deemed to be global systemically important banking institutions (G-SIBs) under the Basel G-SIB framework). These proposals would require the firm and other G-SIBs to meet a 5% supplementary leverage ratio (comprised of the minimum requirement of 3% plus a 2% buffer). As of December 2013, our estimated supplementary leverage ratio based on the Revised Capital Framework approximates this proposed minimum.

In addition, the Basel Committee recently finalized revisions that would increase the size of the leverage exposure for purposes of the supplementary leverage ratio, but would retain a minimum supplementary leverage ratio requirement of 3%. It is not known with certainty at this point whether the U.S. regulators will adopt this revised definition of leverage into their rules and proposals for the supplementary leverage ratio.

82 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Other Developments

The Basel Committee and the Financial Stability Board (established at the direction of the leaders of the Group of 20) have also recently issued several consultative papers which propose further changes to capital regulations. In particular, the Basel Committee has issued consultation papers on a "Fundamental Review of the Trading Book" and "Revisions to the Securitization Framework" that could have an impact on the level of the firm's RWAs and regulatory capital ratios.

The European Union (EU) finalized legislation to implement Basel III, which became effective on January 1, 2014. The Dodd-Frank Act, other reform initiatives proposed and announced by the Agencies, the Basel Committee, and other governmental entities and regulators (including the EU and the U.K.'s Financial Services Authority (FSA) which was replaced by the Prudential Regulation Authority and the Financial Conduct Authority (FCA) on April 1, 2013) are not in all cases consistent with one another, which adds further uncertainty to the firm's future capital, leverage and liquidity requirements, and those of the firm's subsidiaries.

The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers and major security-based swap participants. The firm has registered certain subsidiaries as "swap dealers" under the CFTC rules, including GS&Co., GS Bank USA, Goldman Sachs International (GSI), and J. Aron & Company. These entities and other entities that would require registration under the CFTC or SEC rules will be subject to regulatory capital requirements, which have not been finalized by the CFTC and SEC.

Capital Planning and Stress Testing Process

Our capital planning and stress testing process incorporates our internally designed stress tests and those required under CCAR and DFAST. The process is designed to identify and measure material risks associated with our business activities. We also attribute capital usage to each of our businesses and maintain a contingency capital plan.

Stress Testing. Our stress testing process incorporates an internal capital adequacy assessment with the objective of ensuring that the firm is appropriately capitalized relative to the risks in our business. As part of our assessment, we project sources and uses of capital given a range of business environments, including stressed conditions. Our stress scenarios incorporate our internally designed stress tests and those required under CCAR and DFAST and are designed to capture our specific vulnerabilities and risks and to analyze whether the firm holds an appropriate amount of capital. Our goal is to hold sufficient capital to ensure we remain adequately capitalized after experiencing a severe stress event. Our assessment of capital adequacy is viewed in tandem with our assessment of liquidity adequacy and is integrated into the overall risk management structure, governance and policy framework of the firm.

Internal Risk-Based Capital Assessment. As part of our capital planning and stress testing process, we perform an internal risk-based capital assessment. This assessment incorporates market risk, credit risk and operational risk. Market risk is calculated by using VaR calculations supplemented by risk-based add-ons which include risks related to rare events (tail risks). Credit risk utilizes assumptions about our counterparties' probability of default and the size of our losses in the event of a default. Operational risk is calculated based on scenarios incorporating multiple types of operational failures as well as incorporating internal and external actual loss experience. Backtesting is used to gauge the effectiveness of models at capturing and measuring relevant risks.

Capital Attribution. We attribute capital usage to each of our businesses based upon regulatory capital requirements as well as our internal risk-based capital assessment. We manage the levels of our capital usage based upon the established balance sheet and risk limits.

Contingency Capital Plan. As part of our comprehensive capital management policy, we maintain a contingency capital plan. Our contingency capital plan provides a framework for analyzing and responding to a perceived or actual capital deficiency, including, but not limited to, identification of drivers of a capital deficiency, as well as mitigants and potential actions. It outlines the appropriate communication procedures to follow during a crisis period, including internal dissemination of information as well as ensuring timely communication with external stakeholders.

Goldman Sachs 2013 Form 10-K 83
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Rating Agency Guidelines

The credit rating agencies assign credit ratings to the obligations of Group Inc., which directly issues or guarantees substantially all of the firm's senior unsecured obligations. GS&Co., GSI and GSIB have been assigned long- and short-term issuer ratings by certain credit rating agencies. GS Bank USA has also been assigned long- and short-term issuer ratings, as well as ratings on its long-term and short-term bank deposits. In addition, credit rating agencies have assigned ratings to debt obligations of certain other subsidiaries of Group Inc.

The level and composition of our equity capital are among the many factors considered in determining our credit ratings. Each agency has its own definition of eligible capital and methodology for evaluating capital adequacy, and assessments are generally based on a combination of factors rather than a single calculation. See "Liquidity Risk Management - Credit Ratings" for further information about credit ratings of Group Inc., GS Bank USA, GS&Co., GSI and GSIB.

Subsidiary Capital Requirements

Many of our subsidiaries, including GS Bank USA and our broker-dealer subsidiaries, are subject to separate regulation and capital requirements of the jurisdictions in which they operate.

GS Bank USA. GS Bank USA is subject to minimum capital requirements that are calculated in a manner similar to those applicable to bank holding companies and computes its risk-based capital ratios in accordance with the regulatory capital requirements applicable to state member banks, which, as of December 2013, were based on Basel I, and also reflected the revised market risk regulatory capital requirements as implemented by the Federal Reserve Board. The capital regulations also include requirements with respect to leverage. See Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about GS Bank USA's regulatory capital ratios. GS Bank USA is also subject to the Revised Capital Framework, beginning January 1, 2014.

In addition to revisions to the risk-based capital ratios, GS Bank USA is now subject to a 4% minimum Tier 1 leverage ratio requirement, and as an Advanced approach banking organization, will be subject to a new minimum supplementary leverage ratio (as described above) of 3% effective January 1, 2018.

Shortly after the approval of the Revised Capital Framework, the Agencies issued a proposal that also requires that U.S. insured depository institution subsidiaries of U.S. G-SIBs, such as GS Bank USA, meet a "well-capitalized" supplementary leverage ratio requirement of 6%. If these proposals are enacted as proposed, these higher requirements would be effective beginning January 1, 2018. As of December 2013, GS Bank USA's estimated supplementary leverage ratio based on the Revised Capital Framework approximates this proposed minimum.

In addition, the Basel Committee's recently finalized revisions regarding the supplementary leverage ratio discussed above may also be applicable to GS Bank USA.

See Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about the Revised Capital Framework as it relates to GS Bank USA and incremental capital requirements for domestic systemically important banking institutions.

For purposes of assessing the adequacy of its capital, GS Bank USA also performs an internal capital adequacy assessment which is similar to that performed by Group Inc. In addition, the rules adopted by the Federal Reserve Board under the Dodd-Frank Act require GS Bank USA to conduct stress tests on an annual basis and publish a summary of certain results. GS Bank USA submitted its annual DFAST stress results to the Federal Reserve in January 2014 and expects to publish a summary of its results in March 2014. GS Bank USA's capital levels and prompt corrective action classification are subject to qualitative judgments by its regulators about components of capital, risk weightings and other factors.

84 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

GSI. Our regulated U.K. broker-dealer, GSI, is one of the firm's principal non-U.S. regulated subsidiaries and is regulated by the PRA and the FCA. As of December 2013 and December 2012, GSI was subject to capital regulations, which were based on the Basel Committee's June 2006 Framework (Basel II) as modified by the Basel Committee's February 2011 Revisions to the Basel II market risk framework and as implemented in the European Union through the Capital Requirements Directives. As of December 2013 and December 2012, GSI had a Tier 1 capital ratio of 14.4% and 11.5%, respectively, and a Total capital ratio of 18.5% and 16.9%, respectively. The minimum Tier 1 capital ratio under PRA rules was 4%, and the minimum Total capital ratio was 8%. The PRA has significantly revised its capital regulations effective beginning January 1, 2014; the revised regulations are largely based on Basel III and, similar to the Revised Capital Framework, also introduce leverage ratio reporting requirements.

Other Subsidiaries. We expect that the capital requirements of several of our subsidiaries are likely to increase in the future due to the various developments arising from the Basel Committee, the Dodd-Frank Act, and other governmental entities and regulators. See Note 20 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for information about the capital requirements of our other regulated subsidiaries and the potential impact of regulatory reform.

Subsidiaries not subject to separate regulatory capital requirements may hold capital to satisfy local tax and legal guidelines, rating agency requirements (for entities with assigned credit ratings) or internal policies, including policies concerning the minimum amount of capital a subsidiary should hold based on its underlying level of risk. In certain instances, Group Inc. may be limited in its ability to access capital held at certain subsidiaries as a result of regulatory, tax or other constraints. As of December 2013 and December 2012, Group Inc.'s equity investment in subsidiaries was $73.39 billion and $73.32 billion, respectively, compared with its total shareholders' equity of $78.47 billion and $75.72 billion, respectively.

Guarantees of Subsidiaries. Group Inc. has guaranteed the payment obligations of GS&Co., GS Bank USA, and Goldman Sachs Execution & Clearing, L.P. (GSEC) subject to certain exceptions. In November 2008, Group Inc. contributed subsidiaries into GS Bank USA, and Group Inc. agreed to guarantee certain losses, including credit-related losses, relating to assets held by the contributed entities. In connection with this guarantee, Group Inc. also agreed to pledge to GS Bank USA certain collateral, including interests in subsidiaries and other illiquid assets.

Our capital invested in non-U.S. subsidiaries is generally exposed to foreign exchange risk, substantially all of which is managed through a combination of derivatives and non-U.S. denominated debt.

Equity Capital Management

We principally manage our capital through issuances and repurchases of our common stock. We may also, from time to time, issue or repurchase our preferred stock, junior subordinated debt issued to trusts, and other subordinated debt or other forms of capital as business conditions warrant and subject to approval of the Federal Reserve Board. We manage our capital requirements principally by setting limits on balance sheet assets and/or limits on risk, in each case both at the consolidated and business levels. We attribute capital usage to each of our businesses based upon our regulatory capital requirements, as well as our internal risk-based capital assessment. We manage the levels of our capital usage based upon the established balance sheet and risk limits.

See Notes 16 and 19 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about our preferred stock, junior subordinated debt issued to trusts and other subordinated debt.

Berkshire Hathaway Warrant. On October 1, 2013, Berkshire Hathaway exercised in full a warrant to purchase shares of the firm's common stock. The warrant, as amended in March 2013, required net share settlement, and the firm delivered 13.1 million shares of common stock to Berkshire Hathaway on October 4, 2013. The number of shares delivered represented the value of the difference between the average closing price of the firm's common stock over the 10 trading days preceding October 1, 2013 and the exercise price of $115.00 multiplied by the number of shares of common stock (43.5 million) covered by the warrant. The impact to both the firm's book value per common share and tangible book value per common share was a reduction of approximately 3%.

Goldman Sachs 2013 Form 10-K 85
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Share Repurchase Program. We seek to use our share repurchase program to help maintain the appropriate level of common equity. The repurchase program is effected primarily through regular open-market purchases, the amounts and timing of which are determined primarily by our current and projected capital positions, but which may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock.

On April 15, 2013, the Board of Directors of Group Inc. (Board) authorized the repurchase of an additional 75.0 million shares of common stock pursuant to the firm's existing share repurchase program. As of December 2013, under the share repurchase program approved by the Board, we can repurchase up to 57.2 million additional shares of common stock; however, any such repurchases are subject to the approval of the Federal Reserve Board. See "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" in Part II, Item 5 and Note 19 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for additional information on our repurchase program and see above for information about the annual CCAR.

Other Capital Metrics

The table below presents information on our shareholders' equity and book value per common share.

As of December
in millions, except per share amounts 2013 2012

Total shareholders' equity

$78,467 $75,716

Common shareholders' equity

71,267 69,516

Tangible common shareholders' equity

66,891 64,417

Book value per common share

152.48 144.67

Tangible book value per common share

143.11 134.06

Tangible common shareholders' equity. Tangible common shareholders' equity equals total shareholders' equity less preferred stock, goodwill and identifiable intangible assets. We believe that tangible common shareholders' equity is meaningful because it is a measure that we and investors use to assess capital adequacy. Tangible common shareholders' equity is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

The table below presents the reconciliation of total shareholders' equity to tangible common shareholders' equity.

As of December
in millions 2013 2012

Total shareholders' equity

$78,467 $75,716

Deduct: Preferred stock

(7,200 (6,200

Common shareholders' equity

71,267 69,516

Deduct: Goodwill and identifiable intangible assets

(4,376 (5,099

Tangible common shareholders' equity

$66,891 $64,417

Book value and tangible book value per common share. Book value and tangible book value per common share are based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 467.4 million and 480.5 million as of December 2013 and December 2012, respectively. We believe that tangible book value per common share (tangible common shareholders' equity divided by common shares outstanding) is meaningful because it is a measure that we and investors use to assess capital adequacy. Tangible book value per common share is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

86 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Off-Balance-Sheet Arrangements and

Contractual Obligations

Off-Balance-Sheet Arrangements

We have various types of off-balance-sheet arrangements that we enter into in the ordinary course of business. Our involvement in these arrangements can take many different forms, including:

Ÿ

purchasing or retaining residual and other interests in special purpose entities such as mortgage-backed and other asset-backed securitization vehicles;

Ÿ

holding senior and subordinated debt, interests in limited and general partnerships, and preferred and common stock in other nonconsolidated vehicles;

Ÿ

entering into interest rate, foreign currency, equity, commodity and credit derivatives, including total return swaps;

Ÿ

entering into operating leases; and

Ÿ

providing guarantees, indemnifications, loan commitments, letters of credit and representations and warranties.

We enter into these arrangements for a variety of business purposes, including securitizations. The securitization vehicles that purchase mortgages, corporate bonds, and other types of financial assets are critical to the functioning of several significant investor markets, including the mortgage-backed and other asset-backed securities markets, since they offer investors access to specific cash flows and risks created through the securitization process.

We also enter into these arrangements to underwrite client securitization transactions; provide secondary market liquidity; make investments in performing and nonperforming debt, equity, real estate and other assets; provide investors with credit-linked and asset-repackaged notes; and receive or provide letters of credit to satisfy margin requirements and to facilitate the clearance and settlement process.

Our financial interests in, and derivative transactions with, such nonconsolidated entities are generally accounted for at fair value, in the same manner as our other financial instruments, except in cases where we apply the equity method of accounting.

The table below presents where a discussion of our various off-balance-sheet arrangements may be found in Part II, Items 7 and 8 of the 2013 Form 10-K. In addition, see Note 3 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for a discussion of our consolidation policies.

Type of Off-Balance-Sheet

Arrangement

Disclosure in Form 10-K

Variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated VIEs

See Note 11 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K.

Leases, letters of credit, and lending and other commitments

See "Contractual Obligations" below and Note 18 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K.

Guarantees

See "Contractual Obligations" below and Note 18 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K.

Derivatives

See "Credit Risk Management - Credit Exposures - OTC Derivatives" below and Notes 4, 5, 7 and 18 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K.

Goldman Sachs 2013 Form 10-K 87
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Contractual Obligations

We have certain contractual obligations which require us to make future cash payments. These contractual obligations include our unsecured long-term borrowings, secured long-term financings, time deposits and contractual interest payments, all of which are included in our consolidated statements of financial condition. Our obligations to make future cash payments also include certain off-balance-sheet

contractual obligations such as purchase obligations, minimum rental payments under noncancelable leases and commitments and guarantees.

The table below presents our contractual obligations, commitments and guarantees as of December 2013.

in millions 2014 2015-2016 2017-2018
2019-
Thereafter

Total

Amounts related to on-balance-sheet obligations

Time deposits

$         - $    6,554 $  4,626 $  4,481 $  15,661

Secured long-term financings  1

- 5,847 943 734 7,524

Unsecured long-term borrowings  2

- 45,706 43,639 71,620 160,965

Contractual interest payments  3

6,695 12,303 5,252 36,919 61,169

Subordinated liabilities issued by consolidated VIEs

74 - - 403 477

Amounts related to off-balance-sheet arrangements

Commitments to extend credit

15,069 24,214 43,356 4,988 87,627

Contingent and forward starting resale and securities borrowing agreements

34,410 - - - 34,410

Forward starting repurchase and secured lending agreements

8,256 - - - 8,256

Letters of credit

465 21 10 5 501

Investment commitments  4

1,359 5,387 20 350 7,116

Other commitments

3,734 102 54 65 3,955

Minimum rental payments

387 620 493 1,195 2,695

Derivative guarantees

517,634 180,543 39,367 57,736 795,280

Securities lending indemnifications

26,384 - - - 26,384

Other financial guarantees

1,361 620 1,140 1,046 4,167

1.

The aggregate contractual principal amount of secured long-term financings for which the fair value option was elected exceeded the related fair value by $154 million.

2.

Includes $7.48 billion of adjustments to the carrying value of certain unsecured long-term borrowings resulting from the application of hedge accounting. In addition, the aggregate contractual principal amount of unsecured long-term borrowings (principal and non-principal-protected) for which the fair value option was elected exceeded the related fair value by $92 million.

3.

Represents estimated future interest payments related to unsecured long-term borrowings, secured long-term financings and time deposits based on applicable interest rates as of December 2013. Includes stated coupons, if any, on structured notes.

4.

$5.66 billion of commitments to covered funds (as defined by the Volcker Rule) are included in the 2014 and 2015-2016 columns. We expect that substantially all of these commitments will not be called.

In the table above:

Ÿ

Obligations maturing within one year of our financial statement date or redeemable within one year of our financial statement date at the option of the holder are excluded and are treated as short-term obligations.

Ÿ

Obligations that are repayable prior to maturity at our option are reflected at their contractual maturity dates and obligations that are redeemable prior to maturity at the option of the holders are reflected at the dates such options become exercisable.

Ÿ

Amounts included in the table do not necessarily reflect the actual future cash flow requirements for these arrangements because commitments and guarantees represent notional amounts and may expire unused or be reduced or cancelled at the counterparty's request.

Ÿ

Due to the uncertainty of the timing and amounts that will ultimately be paid, our liability for unrecognized tax benefits has been excluded. See Note 24 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about our unrecognized tax benefits.

88 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

See Notes 15 and 18 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about our short-term borrowings and commitments and guarantees, respectively.

As of December 2013, our unsecured long-term borrowings were $160.97 billion, with maturities extending to 2061, and consisted principally of senior borrowings. See Note 16 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about our unsecured long-term borrowings.

As of December 2013, our future minimum rental payments net of minimum sublease rentals under noncancelable leases were $2.70 billion. These lease commitments, principally for office space, expire on various dates through 2069. Certain agreements are subject to periodic escalation provisions for increases in real estate taxes and other charges. See Note 18 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about our leases.

Our occupancy expenses include costs associated with office space held in excess of our current requirements. This excess space, the cost of which is charged to earnings as incurred, is being held for potential growth or to replace currently occupied space that we may exit in the future. We regularly evaluate our current and future space capacity in relation to current and projected staffing levels. For 2013, total occupancy expenses for space held in excess of our current requirements were not material. In addition, for 2013, we incurred exit costs of $19 million related to our office space. We may incur exit costs in the future to the extent we (i) reduce our space capacity or (ii) commit to, or occupy, new properties in the locations in which we operate and, consequently, dispose of existing space that had been held for potential growth. These exit costs may be material to our results of operations in a given period.

Risk Management and Risk Factors

Risks are inherent in our business and include liquidity, market, credit, operational, legal, regulatory and reputational risks. For a further discussion of our risk management processes, see "Overview and Structure of Risk Management" below. Our risks include the risks across our risk categories, regions or global businesses, as well as those which have uncertain outcomes and have the potential to materially impact our financial results, our liquidity and our reputation. For a further discussion of our areas of risk, see "- Liquidity Risk Management," "- Market Risk Management," "- Credit Risk Management," "- Operational Risk Management" and "Certain Risk Factors That May Affect Our Businesses" below.

Goldman Sachs 2013 Form 10-K 89
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Overview and Structure of Risk

Management

Overview

We believe that effective risk management is of primary importance to the success of the firm. Accordingly, we have comprehensive risk management processes through which we monitor, evaluate and manage the risks we assume in conducting our activities. These include market, credit, liquidity, operational, legal, regulatory and reputational risk exposures. Our risk management framework is built around three core components: governance, processes and people.

Governance. Risk management governance starts with our Board, which plays an important role in reviewing and approving risk management policies and practices, both directly and through its committees, including its Risk Committee. The Board also receives regular briefings on firmwide risks, including market risk, liquidity risk, credit risk and operational risk from our independent control and support functions, including the chief risk officer, and on matters impacting our reputation from the chair of our Firmwide Client and Business Standards Committee. The chief risk officer, as part of the review of the firmwide risk portfolio, regularly advises the Risk Committee of the Board of relevant risk metrics and material exposures. Next, at the most senior levels of the firm, our leaders are experienced risk managers, with a sophisticated and detailed understanding of the risks we take. Our senior managers lead and participate in risk-oriented committees, as do the leaders of our independent control and support functions - including those in Compliance, Controllers, our Credit Risk Management department (Credit Risk Management), Human Capital Management, Legal, our Market Risk Management department (Market Risk Management), Operations, our Operational Risk Management department (Operational Risk Management), Tax, Technology and Treasury.

The firm's governance structure provides the protocol and responsibility for decision-making on risk management issues and ensures implementation of those decisions. We make extensive use of risk-related committees that meet regularly and serve as an important means to facilitate and foster ongoing discussions to identify, manage and mitigate risks.

We maintain strong communication about risk and we have a culture of collaboration in decision-making among the revenue-producing units, independent control and support functions, committees and senior management. While we believe that the first line of defense in managing risk rests with the managers in our revenue-producing units, we dedicate extensive resources to independent control and support functions in order to ensure a strong oversight structure and an appropriate segregation of duties. We regularly reinforce the firm's strong culture of escalation and accountability across all divisions and functions.

Processes. We maintain various processes and procedures that are critical components of our risk management. First and foremost is our daily discipline of marking substantially all of the firm's inventory to current market levels. Goldman Sachs carries its inventory at fair value, with changes in valuation reflected immediately in our risk management systems and in net revenues. We do so because we believe this discipline is one of the most effective tools for assessing and managing risk and that it provides transparent and realistic insight into our financial exposures.

We also apply a rigorous framework of limits to control risk across multiple transactions, products, businesses and markets. This includes setting credit and market risk limits at a variety of levels and monitoring these limits on a daily basis. Limits are typically set at levels that will be periodically exceeded, rather than at levels which reflect our maximum risk appetite. This fosters an ongoing dialogue on risk among revenue-producing units, independent control and support functions, committees and senior management, as well as rapid escalation of risk-related matters. See "Market Risk Management" and "Credit Risk Management" for further information on our risk limits.

Active management of our positions is another important process. Proactive mitigation of our market and credit exposures minimizes the risk that we will be required to take outsized actions during periods of stress.

90 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

We also focus on the rigor and effectiveness of the firm's risk systems. The goal of our risk management technology is to get the right information to the right people at the right time, which requires systems that are comprehensive, reliable and timely. We devote significant time and resources to our risk management technology to ensure that it consistently provides us with complete, accurate and timely information.

People. Even the best technology serves only as a tool for helping to make informed decisions in real time about the risks we are taking. Ultimately, effective risk management requires our people to interpret our risk data on an ongoing and timely basis and adjust risk positions accordingly. In both our revenue-producing units and our independent control and support functions, the experience of our professionals, and their understanding of the nuances and limitations of each risk measure, guide the firm in assessing exposures and maintaining them within prudent levels.

We reinforce a culture of effective risk management in our training and development programs as well as the way we evaluate performance, and recognize and reward our people. Our training and development programs, including certain sessions led by the most senior leaders of the firm, are focused on the importance of risk management, client relationships and reputational excellence. As part of our annual performance review process, we assess reputational excellence including how an employee exercises good risk management and reputational judgment, and adheres to our code of conduct and compliance policies. Our review and reward processes are designed to communicate and reinforce to our professionals the link between behavior and how people are recognized, the need to focus on our clients and our reputation, and the need to always act in accordance with the highest standards of the firm.

Structure

Ultimate oversight of risk is the responsibility of the firm's Board. The Board oversees risk both directly and through its committees, including its Risk Committee. The Risk Committee consists of all of our independent directors. Within the firm, a series of committees with specific risk management mandates have oversight or decision-making responsibilities for risk management activities. Committee membership generally consists of senior managers from both our revenue-producing units and our independent control and support functions. We have established procedures for these committees to ensure that appropriate information barriers are in place. Our primary risk committees, most of which also have additional sub-committees or working groups, are described below. In addition to these committees, we have other risk-oriented committees which provide oversight for different businesses, activities, products, regions and legal entities. All of our firmwide, regional and divisional committees have responsibility for considering the impact of transactions and activities which they oversee on our reputation.

Membership of the firm's risk committees is reviewed regularly and updated to reflect changes in the responsibilities of the committee members. Accordingly, the length of time that members serve on the respective committees varies as determined by the committee chairs and based on the responsibilities of the members within the firm.

In addition, independent control and support functions, which report to the chief financial officer, the general counsel and the chief administrative officer, are responsible for day-to-day oversight or monitoring of risk, as discussed in greater detail in the following sections. Internal Audit, which reports to the Audit Committee of the Board and includes professionals with a broad range of audit and industry experience, including risk management expertise, is responsible for independently assessing and validating key controls within the risk management framework.

Goldman Sachs 2013 Form 10-K 91
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The chart below presents an overview of our risk management governance structure, highlighting the

oversight of our Board, our key risk-related committees and the independence of our control and support functions.

Management Committee. The Management Committee oversees the global activities of the firm, including all of the firm's independent control and support functions. It provides this oversight directly and through authority delegated to committees it has established. This committee is comprised of the most senior leaders of the firm, and is chaired by the firm's chief executive officer. The Management Committee has established various committees with delegated authority and the chairperson of the Management Committee appoints the chairpersons of these committees. Most members of the Management Committee are also members of other firmwide, divisional and regional committees. The following are the committees that are principally involved in firmwide risk management.

Firmwide Client and Business Standards Committee. The Firmwide Client and Business Standards Committee assesses and makes determinations regarding business standards and practices, reputational risk management, client relationships and client service, is chaired by the firm's president and chief operating officer, and reports to the Management Committee. This committee also has responsibility for overseeing recommendations of the Business Standards Committee. This committee periodically updates and receives guidance from the Public Responsibilities Subcommittee of the Corporate Governance, Nominating and Public Responsibilities Committee of the Board. This committee has established the following two risk-related committees that report to it:

92 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Ÿ

Firmwide New Activity Committee. The Firmwide New Activity Committee is responsible for reviewing new activities and for establishing a process to identify and review previously approved activities that are significant and that have changed in complexity and/or structure or present different reputational and suitability concerns over time to consider whether these activities remain appropriate. This committee is co-chaired by the firm's head of operations/chief operating officer for Europe, Middle East and Africa and the chief administrative officer of our Investment Management Division, who are appointed by the Firmwide Client and Business Standards Committee chairperson.

Ÿ

Firmwide Suitability Committee. The Firmwide Suitability Committee is responsible for setting standards and policies for product, transaction and client suitability and providing a forum for consistency across divisions, regions and products on suitability assessments. This committee also reviews suitability matters escalated from other firm committees. This committee is co-chaired by the deputy head of our Global Compliance Division and the co-head of our Investment Management Division, who are appointed by the Firmwide Client and Business Standards Committee chairperson.

Firmwide Risk Committee. The Firmwide Risk Committee is globally responsible for the ongoing monitoring and management of the firm's financial risks. Through both direct and delegated authority, the Firmwide Risk Committee approves firmwide, product, divisional and business-level limits for both market and credit risks, approves sovereign credit risk limits and reviews results of stress tests and scenario analyses. This committee is co-chaired by the firm's chief financial officer and a senior managing director from the firm's executive office, and reports to the Management Committee. The following four committees report to the Firmwide Risk Committee. The chairperson of the Securities Division Risk Committee is appointed by the chairpersons of the Firmwide Risk Committee; the chairpersons of the Credit Policy and Firmwide Operational Risk Committees are appointed by the firm's chief risk officer; and the chairpersons of the Firmwide Finance Committee are appointed by the Firmwide Risk Committee.

Ÿ

Securities Division Risk Committee. The Securities Division Risk Committee sets market risk limits, subject to overall firmwide risk limits, for the Securities Division based on a number of risk measures, including but not limited to VaR, stress tests, scenario analyses and balance sheet levels. This committee is chaired by the chief risk officer of our Securities Division.

Ÿ

Credit Policy Committee. The Credit Policy Committee establishes and reviews broad firmwide credit policies and parameters that are implemented by Credit Risk Management. This committee is chaired by the firm's chief credit officer.

Ÿ

Firmwide Operational Risk Committee. The Firmwide Operational Risk Committee provides oversight of the ongoing development and implementation of our operational risk policies, framework and methodologies, and monitors the effectiveness of operational risk management. This committee is co-chaired by a managing director in Credit Risk Management and a managing director in Operational Risk Management.

Ÿ

Firmwide Finance Committee. The Firmwide Finance Committee has oversight responsibility for liquidity risk, the size and composition of our balance sheet and capital base, and credit ratings. This committee regularly reviews our liquidity, balance sheet, funding position and capitalization, approves related policies, and makes recommendations as to any adjustments to be made in light of current events, risks, exposures and regulatory requirements. As a part of such oversight, among other things, this committee reviews and approves balance sheet limits and the size of our GCE. This committee is co-chaired by the firm's chief financial officer and the firm's global treasurer.

Goldman Sachs 2013 Form 10-K 93
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The following committees report jointly to the Firmwide Risk Committee and the Firmwide Client and Business Standards Committee:

Ÿ

Firmwide Commitments Committee. The Firmwide Commitments Committee reviews the firm's underwriting and distribution activities with respect to equity and equity-related product offerings, and sets and maintains policies and procedures designed to ensure that legal, reputational, regulatory and business standards are maintained on a global basis. In addition to reviewing specific transactions, this committee periodically conducts general strategic reviews of sectors and products and establishes policies in connection with transaction practices. This committee is co-chaired by the firm's senior strategy officer and the co-head of Global Mergers & Acquisitions, who are appointed by the Firmwide Client and Business Standards Committee chairperson.

Ÿ

Firmwide Capital Committee. The Firmwide Capital Committee provides approval and oversight of debt-related transactions, including principal commitments of the firm's capital. This committee aims to ensure that business and reputational standards for underwritings and capital commitments are maintained on a global basis. This committee is co-chaired by the firm's global treasurer and the head of credit finance for Europe, Middle East and Africa who are appointed by the Firmwide Risk Committee chairpersons.

Investment Management Division Risk Committee. The Investment Management Division Risk Committee is responsible for the ongoing monitoring and control of global market, counterparty credit and liquidity risks associated with the activities of our investment management businesses. The head of Investment Management Division risk management is the chair of this committee. The Investment Management Division Risk Committee reports to the firm's chief risk officer.

Conflicts Management

Conflicts of interest and the firm's approach to dealing with them are fundamental to our client relationships, our reputation and our long-term success. The term "conflict of interest" does not have a universally accepted meaning, and conflicts can arise in many forms within a business or between businesses. The responsibility for identifying potential conflicts, as well as complying with the firm's policies and procedures, is shared by the entire firm.

We have a multilayered approach to resolving conflicts and addressing reputational risk. The firm's senior management oversees policies related to conflicts resolution. The firm's senior management, the Business Selection and Conflicts Resolution Group, the Legal Department and Compliance Division, the Firmwide Client and Business Standards Committee and other internal committees all play roles in the formulation of policies, standards and principles and assist in making judgments regarding the appropriate resolution of particular conflicts. Resolving potential conflicts necessarily depends on the facts and circumstances of a particular situation and the application of experienced and informed judgment.

At the transaction level, various people and groups have roles. As a general matter, the Business Selection and Conflicts Resolution Group reviews all financing and advisory assignments in Investment Banking and certain investing, lending and other activities of the firm. Various transaction oversight committees, such as the Firmwide Capital, Commitments and Suitability Committees and other committees across the firm, also review new underwritings, loans, investments and structured products. These committees work with internal and external lawyers and the Compliance Division to evaluate and address any actual or potential conflicts.

We regularly assess our policies and procedures that address conflicts of interest in an effort to conduct our business in accordance with the highest ethical standards and in compliance with all applicable laws, rules, and regulations.

94 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Liquidity Risk Management

Liquidity is of critical importance to financial institutions. Most of the failures of financial institutions have occurred in large part due to insufficient liquidity. Accordingly, the firm has in place a comprehensive and conservative set of liquidity and funding policies to address both firm-specific and broader industry or market liquidity events. Our principal objective is to be able to fund the firm and to enable our core businesses to continue to serve clients and generate revenues, even under adverse circumstances.

We manage liquidity risk according to the following principles:

Excess Liquidity. We maintain substantial excess liquidity to meet a broad range of potential cash outflows and collateral needs in a stressed environment.

Asset-Liability Management. We assess anticipated holding periods for our assets and their expected liquidity in a stressed environment. We manage the maturities and diversity of our funding across markets, products and counterparties, and seek to maintain liabilities of appropriate tenor relative to our asset base.

Contingency Funding Plan. We maintain a contingency funding plan to provide a framework for analyzing and responding to a liquidity crisis situation or periods of market stress. This framework sets forth the plan of action to fund normal business activity in emergency and stress situations. These principles are discussed in more detail below.

Excess Liquidity

Our most important liquidity policy is to pre-fund our estimated potential cash and collateral needs during a liquidity crisis and hold this excess liquidity in the form of unencumbered, highly liquid securities and cash. We believe that the securities held in our global core excess would be readily convertible to cash in a matter of days, through liquidation, by entering into repurchase agreements or from maturities of resale agreements, and that this cash would allow us to meet immediate obligations without needing to sell other assets or depend on additional funding from credit-sensitive markets.

As of December 2013 and December 2012, the fair value of the securities and certain overnight cash deposits included in our GCE totaled $184.07 billion and $174.62 billion, respectively. Based on the results of our internal liquidity risk model, discussed below, as well as our consideration of other factors including, but not limited to, an assessment of our potential intraday liquidity needs and a qualitative assessment of the condition of the financial markets and the firm, we believe our liquidity position as of both December 2013 and December 2012 was appropriate.

The table below presents the fair value of the securities and certain overnight cash deposits that are included in our GCE.

Average for the

Year Ended December

in millions 2013 2012

U.S. dollar-denominated

$136,824 $125,111

Non-U.S. dollar-denominated

45,826 46,984

Total

$182,650 $172,095

The U.S. dollar-denominated excess is composed of (i) unencumbered U.S. government and federal agency obligations (including highly liquid U.S. federal agency mortgage-backed obligations), all of which are eligible as collateral in Federal Reserve open market operations and (ii) certain overnight U.S. dollar cash deposits. The non-U.S. dollar-denominated excess is composed of only unencumbered German, French, Japanese and United Kingdom government obligations and certain overnight cash deposits in highly liquid currencies. We strictly limit our excess liquidity to this narrowly defined list of securities and cash because they are highly liquid, even in a difficult funding environment. We do not include other potential sources of excess liquidity, such as less liquid unencumbered securities or committed credit facilities, in our GCE.

Goldman Sachs 2013 Form 10-K 95
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The table below presents the fair value of our GCE by asset class.

Average for the

Year Ended December

in millions 2013 2012

Overnight cash deposits

$  61,265 $  52,233

U.S. government obligations

76,019 72,379

U.S. federal agency obligations,
including highly liquid
U.S. federal agency
mortgage-backed obligations

2,551 2,313

German, French, Japanese
and United Kingdom
government obligations

42,815 45,170

Total

$182,650 $172,095

Our GCE is held by Group Inc. and our major broker-dealer and bank subsidiaries, as presented in the table below.

Average for the

Year Ended December

in millions 2013 2012

Group Inc.

$  29,752 $  37,405

Major broker-dealer subsidiaries

93,103 78,229

Major bank subsidiaries

59,795 56,461

Total

$182,650 $172,095

Our GCE reflects the following principles:

Ÿ

The first days or weeks of a liquidity crisis are the most critical to a company's survival.

Ÿ

Focus must be maintained on all potential cash and collateral outflows, not just disruptions to financing flows. Our businesses are diverse, and our liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment.

Ÿ

During a liquidity crisis, credit-sensitive funding, including unsecured debt and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions and tenor) or availability of other types of secured financing may change.

Ÿ

As a result of our policy to pre-fund liquidity that we estimate may be needed in a crisis, we hold more unencumbered securities and have larger debt balances than our businesses would otherwise require. We believe that our liquidity is stronger with greater balances of highly liquid unencumbered securities, even though it increases our total assets and our funding costs.

We believe that our GCE provides us with a resilient source of funds that would be available in advance of potential cash and collateral outflows and gives us significant flexibility in managing through a difficult funding environment.

In order to determine the appropriate size of our GCE, we use an internal liquidity model, referred to as the Modeled Liquidity Outflow, which captures and quantifies the firm's liquidity risks. We also consider other factors including, but not limited to, an assessment of our potential intraday liquidity needs and a qualitative assessment of the condition of the financial markets and the firm.

We distribute our GCE across entities, asset types, and clearing agents to provide us with sufficient operating liquidity to ensure timely settlement in all major markets, even in a difficult funding environment.

We maintain our GCE to enable us to meet current and potential liquidity requirements of our parent company, Group Inc., and its subsidiaries. The Modeled Liquidity Outflow incorporates a consolidated requirement for the firm as well as a standalone requirement for each of our major broker-dealer and bank subsidiaries. Liquidity held directly in each of these major subsidiaries is intended for use only by that subsidiary to meet its liquidity requirements and is assumed not to be available to Group Inc. unless (i) legally provided for and (ii) there are no additional regulatory, tax or other restrictions. In addition, the Modeled Liquidity Outflow incorporates a broader assessment of standalone liquidity requirements for other subsidiaries and we hold a portion of our GCE directly at Group Inc. to support such requirements. In addition to the GCE, we maintain operating cash balances in several of our other operating entities, primarily for use in specific currencies, entities, or jurisdictions where we do not have immediate access to parent company liquidity.

In addition to our GCE, we have a significant amount of other unencumbered cash and financial instruments, including other government obligations, high-grade money market securities, corporate obligations, marginable equities, loans and cash deposits not included in our GCE. The fair value of these assets averaged $90.77 billion for 2013 and $87.09 billion for 2012. We do not consider these assets liquid enough to be eligible for our GCE liquidity pool and therefore conservatively do not assume we will generate liquidity from these assets in our Modeled Liquidity Outflow.

96 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Modeled Liquidity Outflow. Our Modeled Liquidity Outflow is based on conducting multiple scenarios that include combinations of market-wide and firm-specific stress. These scenarios are characterized by the following qualitative elements:

Ÿ

Severely challenged market environments, including low consumer and corporate confidence, financial and political instability, adverse changes in market values, including potential declines in equity markets and widening of credit spreads.

Ÿ

A firm-specific crisis potentially triggered by material losses, reputational damage, litigation, executive departure, and/or a ratings downgrade.

The following are the critical modeling parameters of the Modeled Liquidity Outflow:

Ÿ

Liquidity needs over a 30-day scenario.

Ÿ

A two-notch downgrade of the firm's long-term senior unsecured credit ratings.

Ÿ

A combination of contractual outflows, such as upcoming maturities of unsecured debt, and contingent outflows (e.g., actions though not contractually required, we may deem necessary in a crisis). We assume that most contingent outflows will occur within the initial days and weeks of a crisis.

Ÿ

No issuance of equity or unsecured debt.

Ÿ

No support from government funding facilities. Although we have access to various central bank funding programs, we do not assume reliance on them as a source of funding in a liquidity crisis.

Ÿ

We do not assume asset liquidation, other than the GCE.

The Modeled Liquidity Outflow is calculated and reported to senior management on a daily basis. We regularly refine our model to reflect changes in market or economic conditions and the firm's business mix.

The potential contractual and contingent cash and collateral outflows covered in our Modeled Liquidity Outflow include:

Unsecured Funding

Ÿ

Contractual: All upcoming maturities of unsecured long-term debt, commercial paper, promissory notes and other unsecured funding products. We assume that we will be unable to issue new unsecured debt or roll over any maturing debt.

Ÿ

Contingent: Repurchases of our outstanding long-term debt, commercial paper and hybrid financial instruments in the ordinary course of business as a market maker.

Deposits

Ÿ

Contractual: All upcoming maturities of term deposits. We assume that we will be unable to raise new term deposits or rollover any maturing term deposits.

Ÿ

Contingent: Withdrawals of bank deposits that have no contractual maturity. The withdrawal assumptions reflect, among other factors, the type of deposit, whether the deposit is insured or uninsured, and the firm's relationship with the depositor.

Secured Funding

Ÿ

Contractual: A portion of upcoming contractual maturities of secured funding due to either the inability to refinance or the ability to refinance only at wider haircuts (i.e., on terms which require us to post additional collateral). Our assumptions reflect, among other factors, the quality of the underlying collateral, counterparty roll probabilities (our assessment of the counterparty's likelihood of continuing to provide funding on a secured basis at the maturity of the trade) and counterparty concentration.

Ÿ

Contingent: Adverse changes in value of financial assets pledged as collateral for financing transactions, which would necessitate additional collateral postings under those transactions.

OTC Derivatives

Ÿ

Contingent: Collateral postings to counterparties due to adverse changes in the value of our OTC derivatives, excluding those that are cleared and settled through central counterparties (OTC-cleared).

Ÿ

Contingent: Other outflows of cash or collateral related to OTC derivatives, excluding OTC-cleared, including the impact of trade terminations, collateral substitutions, collateral disputes, loss of rehypothecation rights, collateral calls or termination payments required by a two-notch downgrade in our credit ratings, and collateral that has not been called by counterparties, but is available to them.

Goldman Sachs 2013 Form 10-K 97
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Exchange-Traded and OTC-cleared Derivatives

Ÿ

Contingent: Variation margin postings required due to adverse changes in the value of our outstanding exchange-traded and OTC-cleared derivatives.

Ÿ

Contingent: An increase in initial margin and guaranty fund requirements by derivative clearing houses.

Customer Cash and Securities

Ÿ

Contingent: Liquidity outflows associated with our prime brokerage business, including withdrawals of customer credit balances, and a reduction in customer short positions, which serve as a funding source for long positions.

Unfunded Commitments

Ÿ

Contingent: Draws on our unfunded commitments. Draw assumptions reflect, among other things, the type of commitment and counterparty.

Other

Ÿ

Other upcoming large cash outflows, such as tax payments.

Asset-Liability Management

Our liquidity risk management policies are designed to ensure we have a sufficient amount of financing, even when funding markets experience persistent stress. We seek to maintain a long-dated and diversified funding profile, taking into consideration the characteristics and liquidity profile of our assets.

Our approach to asset-liability management includes:

Ÿ

Conservatively managing the overall characteristics of our funding book, with a focus on maintaining long-term, diversified sources of funding in excess of our current requirements. See "Balance Sheet and Funding Sources - Funding Sources" for additional details.

Ÿ

Actively managing and monitoring our asset base, with particular focus on the liquidity, holding period and our ability to fund assets on a secured basis. This enables us to determine the most appropriate funding products and tenors. See "Balance Sheet and Funding Sources - Balance Sheet Management" for more detail on our balance sheet management process and "- Funding Sources - Secured Funding" for more detail on asset classes that may be harder to fund on a secured basis.

Ÿ

Raising secured and unsecured financing that has a long tenor relative to the liquidity profile of our assets. This reduces the risk that our liabilities will come due in advance of our ability to generate liquidity from the sale of our assets. Because we maintain a highly liquid balance sheet, the holding period of certain of our assets may be materially shorter than their contractual maturity dates.

Our goal is to ensure that the firm maintains sufficient liquidity to fund its assets and meet its contractual and contingent obligations in normal times as well as during periods of market stress. Through our dynamic balance sheet management process (see "Balance Sheet and Funding Sources - Balance Sheet Management"), we use actual and projected asset balances to determine secured and unsecured funding requirements. Funding plans are reviewed and approved by the Firmwide Finance Committee on a quarterly basis. In addition, senior managers in our independent control and support functions regularly analyze, and the Firmwide Finance Committee reviews, our consolidated total capital position (unsecured long-term borrowings plus total shareholders' equity) so that we maintain a level of long-term funding that is sufficient to meet our long-term financing requirements. In a liquidity crisis, we would first use our GCE in order to avoid reliance on asset sales (other than our GCE). However, we recognize that orderly asset sales may be prudent or necessary in a severe or persistent liquidity crisis.

Subsidiary Funding Policies. The majority of our unsecured funding is raised by Group Inc. which lends the necessary funds to its subsidiaries, some of which are regulated, to meet their asset financing, liquidity and capital requirements. In addition, Group Inc. provides its regulated subsidiaries with the necessary capital to meet their regulatory requirements. The key benefit of this approach to subsidiary funding is greater flexibility to meet the funding requirements of various subsidiaries over time. Funding is also raised at the subsidiary level through a variety of products, including secured funding, unsecured borrowings and deposits.

98 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Our intercompany funding policies assume that, unless legally provided for, a subsidiary's funds or securities are not freely available to its parent company or other subsidiaries. In particular, many of our subsidiaries are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to Group Inc. Regulatory action of that kind could impede access to funds that Group Inc. needs to make payments on its obligations. Accordingly, we assume that the capital provided to our regulated subsidiaries is not available to Group Inc. or other subsidiaries and any other financing provided to our regulated subsidiaries is not available until the maturity of such financing.

Group Inc. has provided substantial amounts of equity and subordinated indebtedness, directly or indirectly, to its regulated subsidiaries. For example, as of December 2013, Group Inc. had $31.40 billion of equity and subordinated indebtedness invested in GS&Co., its principal U.S. registered broker-dealer; $26.40 billion invested in GSI, a regulated U.K. broker-dealer; $2.26 billion invested in GSEC, a U.S. registered broker-dealer; $2.82 billion invested in GSJCL, a regulated Japanese broker-dealer; $20.04 billion invested in GS Bank USA, a regulated New York State-chartered bank; and $3.50 billion invested in GSIB, a regulated U.K. bank. Group Inc. also provided, directly or indirectly, $75.77 billion of unsubordinated loans and $9.93 billion of collateral to these entities, substantially all of which was to GS&Co., GSI and GS Bank USA, as of December 2013. In addition, as of December 2013, Group Inc. had significant amounts of capital invested in and loans to its other regulated subsidiaries.

Contingency Funding Plan

The Goldman Sachs contingency funding plan sets out the plan of action we would use to fund business activity in crisis situations and periods of market stress. The contingency funding plan outlines a list of potential risk factors, key reports and metrics that are reviewed on an ongoing basis to assist in assessing the severity of, and managing through, a liquidity crisis and/or market dislocation. The contingency funding plan also describes in detail the firm's potential responses if our assessments indicate that the firm has entered a liquidity crisis, which include funding our potential cash and collateral needs as well as utilizing secondary sources of liquidity. Mitigants and action items to address specific risks which may arise are also described and assigned to individuals responsible for execution.

The contingency funding plan identifies key groups of individuals to foster effective coordination, control and distribution of information, all of which are critical in the management of a crisis or period of market stress. The contingency funding plan also details the responsibilities of these groups and individuals, which include making and disseminating key decisions, coordinating all contingency activities throughout the duration of the crisis or period of market stress, implementing liquidity maintenance activities and managing internal and external communication.

Proposed Liquidity Framework

The Basel Committee on Banking Supervision's international framework for liquidity risk measurement, standards and monitoring calls for imposition of a liquidity coverage ratio, designed to ensure that banks and bank holding companies maintain an adequate level of unencumbered high-quality liquid assets based on expected cash outflows under an acute liquidity stress scenario, and a net stable funding ratio, designed to promote more medium- and long-term funding of the assets and activities of these entities over a one-year time horizon. Under the Basel Committee framework, the liquidity coverage ratio would be introduced on January 1, 2015; however, there would be a phase-in period whereby firms would have a 60% minimum in 2015 which would be raised 10% per year until it reaches 100% in 2019. The net stable funding ratio is not expected to be introduced as a requirement until January 1, 2018.

In addition, the Office of the Comptroller of the Currency, the Federal Reserve Board and the FDIC have issued a proposal on minimum liquidity standards that is generally consistent with the Basel Committee's framework as described above, but, with certain modifications to the high-quality liquid asset definition and expected cash outflow assumptions, and accelerated transition provisions. In addition, under the proposed accelerated transition timeline, the liquidity coverage ratio would be introduced on January 1, 2015; however, there would be an accelerated U.S. phase-in period whereby firms would have an 80% minimum in 2015 which would be raised 10% per year until it reaches 100% in 2017.

The firm will continue to evaluate the impact to our risk management framework going forward. While the principles behind the new frameworks proposed by the Basel Committee and the Agencies are broadly consistent with our current liquidity management framework, it is possible that the implementation of these standards could impact our liquidity and funding requirements and practices.

Goldman Sachs 2013 Form 10-K 99
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Credit Ratings

We rely on the short-term and long-term debt capital markets to fund a significant portion of our day-to-day operations and the cost and availability of debt financing is influenced by our credit ratings. Credit ratings are also important when we are competing in certain markets, such as OTC derivatives, and when we seek to engage in longer-term transactions. See "Certain Risk Factors That May Affect Our Businesses" below and "Risk Factors" in Part I, Item 1A of the 2013 Form 10-K for a discussion of the risks associated with a reduction in our credit ratings.

During the fourth quarter of 2013, as part of a reassessment of its government support assumptions related to the eight largest U.S. bank holding companies, Moody's Investors Service (Moody's) lowered Group Inc.'s ratings on long-term debt (from A3 to Baa1) and subordinated debt (from Baa1 to Baa2). The table below presents the unsecured credit ratings and outlook of Group Inc.

As of December 2013

Short-Term

Debt



Long-Term

Debt



Subordinated

Debt



Trust
Preferred

 1

Preferred

Stock



Ratings

Outlook


DBRS, Inc.

R-1 (middle A (high A A BBB  3 Stable

Fitch, Inc.

F1 A  2 A- BBB- BB+  3 Stable

Moody's

P-2 Baa1  2 Baa2 Baa3 Ba2  3 Stable

Standard & Poor's Ratings Services (S&P)

A-2 A-  2 BBB+ BB+ BB+  3 Negative

Rating and Investment Information, Inc.

a-1 A+ A N/A N/A Negative

1.

Trust preferred securities issued by Goldman Sachs Capital I.

2.

Includes the senior guaranteed trust securities issued by Murray Street Investment Trust I and Vesey Street Investment Trust I.

3.

Includes Group Inc.'s non-cumulative preferred stock and the APEX issued by Goldman Sachs Capital II and Goldman Sachs Capital III.

The table below presents the unsecured credit ratings of GS Bank USA, GS&Co., GSI and GSIB. On February 21, 2014, Moody's assigned GSIB a rating of A2 for long-term debt

and long-term bank deposits and P-1 for short-term debt and short-term bank deposits.

As of December 2013

Short-Term

Debt



Long-Term
Debt


Short-Term

Bank Deposits



Long-Term

Bank Deposits


Fitch, Inc.

GS Bank USA

F1 A F1 A+

GS&Co.

F1 A N/A N/A

GSI

F1 A N/A N/A

GSIB

F1 A N/A N/A

Moody's

GS Bank USA

P-1 A2 P-1 A2

GSI

P-1 A2 N/A N/A

S&P

GS Bank USA

A-1 A N/A N/A

GS&Co.

A-1 A N/A N/A

GSI

A-1 A N/A N/A

GSIB

A-1 A N/A N/A

100 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

We believe our credit ratings are primarily based on the credit rating agencies' assessment of:

Ÿ

our liquidity, market, credit and operational risk management practices;

Ÿ

the level and variability of our earnings;

Ÿ

our capital base;

Ÿ

our franchise, reputation and management;

Ÿ

our corporate governance; and

Ÿ

the external operating environment, including the assumed level of government support.

Certain of the firm's derivatives have been transacted under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in our credit ratings. We assess the impact of these bilateral agreements by determining the collateral or termination payments that would occur assuming a downgrade by all rating agencies. A downgrade by any one rating agency, depending on the agency's relative ratings of the firm at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies. We allocate a portion of our GCE to ensure we would be able to make the additional collateral or termination payments that may be required in the event of a two-notch reduction in our long-term credit ratings, as well as collateral that has not been called by counterparties, but is available to them. The table below presents the additional collateral or termination payments related to our net derivative liabilities under bilateral agreements that could have been called at the reporting date by counterparties in the event of a one-notch and two-notch downgrade in our credit ratings.

As of December
in millions 2013 2012

Additional collateral or termination
payments for a one-notch downgrade

$   911 $1,534

Additional collateral or termination
payments for a two-notch downgrade

2,989 2,500

Cash Flows

As a global financial institution, our cash flows are complex and bear little relation to our net earnings and net assets. Consequently, we believe that traditional cash flow analysis is less meaningful in evaluating our liquidity position than the excess liquidity and asset-liability management policies described above. Cash flow analysis may, however, be helpful in highlighting certain macro trends and strategic initiatives in our businesses.

Year Ended December 2013. Our cash and cash equivalents decreased by $11.54 billion to $61.13 billion at the end of 2013. We generated $4.54 billion in net cash from operating activities. We used net cash of $16.08 billion for investing and financing activities, primarily to fund loans held for investment and repurchases of common stock.

Year Ended December 2012. Our cash and cash equivalents increased by $16.66 billion to $72.67 billion at the end of 2012. We generated $9.14 billion in net cash from operating and investing activities. We generated $7.52 billion in net cash from financing activities from an increase in bank deposits, partially offset by net repayments of unsecured and secured long-term borrowings.

Year Ended December 2011. Our cash and cash equivalents increased by $16.22 billion to $56.01 billion at the end of 2011. We generated $23.13 billion in net cash from operating and investing activities. We used net cash of $6.91 billion for financing activities, primarily for repurchases of our Series G Preferred Stock and common stock, partially offset by an increase in bank deposits.

Goldman Sachs 2013 Form 10-K 101
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Market Risk Management

Overview

Market risk is the risk of loss in the value of our inventory, as well as certain other financial assets and financial liabilities, due to changes in market conditions. The firm employs a variety of risk measures, each described in the respective sections below, to monitor market risk. We hold inventory primarily for market making for our clients and for our investing and lending activities. Our inventory therefore changes based on client demands and our investment opportunities. Our inventory is accounted for at fair value and therefore fluctuates on a daily basis, with the related gains and losses included in "Market making," and "Other principal transactions." Categories of market risk include the following:

Ÿ

Interest rate risk: results from exposures to changes in the level, slope and curvature of yield curves, the volatilities of interest rates, mortgage prepayment speeds and credit spreads.

Ÿ

Equity price risk: results from exposures to changes in prices and volatilities of individual equities, baskets of equities and equity indices.

Ÿ

Currency rate risk: results from exposures to changes in spot prices, forward prices and volatilities of currency rates.

Ÿ

Commodity price risk: results from exposures to changes in spot prices, forward prices and volatilities of commodities, such as crude oil, petroleum products, natural gas, electricity, and precious and base metals.

Market Risk Management Process

We manage our market risk by diversifying exposures, controlling position sizes and establishing economic hedges in related securities or derivatives. This includes:

Ÿ

accurate and timely exposure information incorporating multiple risk metrics;

Ÿ

a dynamic limit setting framework; and

Ÿ

constant communication among revenue-producing units, risk managers and senior management.

Market Risk Management, which is independent of the revenue-producing units and reports to the firm's chief risk officer, has primary responsibility for assessing, monitoring and managing market risk at the firm. We monitor and control risks through strong firmwide oversight and independent control and support functions across the firm's global businesses.

Managers in revenue-producing units are accountable for managing risk within prescribed limits. These managers have in-depth knowledge of their positions, markets and the instruments available to hedge their exposures.

Managers in revenue-producing units and Market Risk Management discuss market information, positions and estimated risk and loss scenarios on an ongoing basis.

Risk Measures

Market Risk Management produces risk measures and monitors them against market risk limits set by our firm's risk committees. These measures reflect an extensive range of scenarios and the results are aggregated at trading desk, business and firmwide levels.

We use a variety of risk measures to estimate the size of potential losses for both moderate and more extreme market moves over both short-term and long-term time horizons. Our primary risk measures are VaR, which is used for shorter-term periods, and stress tests. Our risk reports detail key risks, drivers and changes for each desk and business, and are distributed daily to senior management of both our revenue-producing units and our independent control and support functions.

Value-at-Risk

VaR is the potential loss in value due to adverse market movements over a defined time horizon with a specified confidence level. For positions included in VaR, see "- Financial Statement Linkages to Market Risk Measures." We typically employ a one-day time horizon with a 95% confidence level. We use a single VaR model which captures risks including interest rates, equity prices, currency rates and commodity prices. As such, VaR facilitates comparison across portfolios of different risk characteristics. VaR also captures the diversification of aggregated risk at the firmwide level.

102 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

We are aware of the inherent limitations to VaR and therefore use a variety of risk measures in our market risk management process. Inherent limitations to VaR include:

Ÿ

VaR does not estimate potential losses over longer time horizons where moves may be extreme.

Ÿ

VaR does not take account of the relative liquidity of different risk positions.

Ÿ

Previous moves in market risk factors may not produce accurate predictions of all future market moves.

When calculating VaR, we use historical simulations with full valuation of approximately 70,000 market factors. VaR is calculated at a position level based on simultaneously shocking the relevant market risk factors for that position. We sample from 5 years of historical data to generate the scenarios for our VaR calculation. The historical data is weighted so that the relative importance of the data reduces over time. This gives greater importance to more recent observations and reflects current asset volatilities, which improves the accuracy of our estimates of potential loss. As a result, even if our positions included in VaR were unchanged, our VaR would increase with increasing market volatility and vice versa.

Given its reliance on historical data, VaR is most effective in estimating risk exposures in markets in which there are no sudden fundamental changes or shifts in market conditions.

Our VaR measure does not include:

Ÿ

positions that are best measured and monitored using sensitivity measures; and

Ÿ

the impact of changes in counterparty and our own credit spreads on derivatives, as well as changes in our own credit spreads on unsecured borrowings for which the fair value option was elected.

Stress Testing

Stress testing is a method of determining the effect on the firm of various hypothetical stress scenarios. We use stress testing to examine risks of specific portfolios as well as the potential impact of significant risk exposures across the firm. We use a variety of stress testing techniques to calculate the potential loss from a wide range of market moves on the firm's portfolios, including sensitivity analysis, scenario analysis and firmwide stress tests. The results of our various stress tests are analyzed together for risk management purposes.

Sensitivity analysis is used to quantify the impact of a market move in a single risk factor across all positions (e.g., equity prices or credit spreads) using a variety of defined market shocks, ranging from those that could be expected over a one-day time horizon up to those that could take many months to occur. We also use sensitivity analysis to quantify the impact of the default of a single corporate entity, which captures the risk of large or concentrated exposures.

Scenario analysis is used to quantify the impact of a specified event, including how the event impacts multiple risk factors simultaneously. For example, for sovereign stress testing we calculate potential direct exposure associated with our sovereign inventory as well as the corresponding debt, equity and currency exposures associated with our non-sovereign inventory that may be impacted by the sovereign distress. When conducting scenario analysis, we typically consider a number of possible outcomes for each scenario, ranging from moderate to severely adverse market impacts. In addition, these stress tests are constructed using both historical events and forward-looking hypothetical scenarios.

Firmwide stress testing combines market, credit, operational and liquidity risks into a single combined scenario. Firmwide stress tests are primarily used to assess capital adequacy as part of our capital planning and stress testing process; however, we also ensure that firmwide stress testing is integrated into our risk governance framework. This includes selecting appropriate scenarios to use for our capital planning and stress testing process. See "Equity Capital - Capital Planning and Stress Testing Process" above for further information.

Goldman Sachs 2013 Form 10-K 103
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Unlike VaR measures, which have an implied probability because they are calculated at a specified confidence level, there is generally no implied probability that our stress test scenarios will occur. Instead, stress tests are used to model both moderate and more extreme moves in underlying market factors. When estimating potential loss, we generally assume that our positions cannot be reduced or hedged (although experience demonstrates that we are generally able to do so).

Stress test scenarios are conducted on a regular basis as part of the firm's routine risk management process and on an ad hoc basis in response to market events or concerns. Stress testing is an important part of the firm's risk management process because it allows us to quantify our exposure to tail risks, highlight potential loss concentrations, undertake risk/reward analysis, and assess and mitigate our risk positions.

Limits

We use risk limits at various levels in the firm (including firmwide, product and business) to govern risk appetite by controlling the size of our exposures to market risk. Limits are set based on VaR and on a range of stress tests relevant to the firm's exposures. Limits are reviewed frequently and amended on a permanent or temporary basis to reflect changing market conditions, business conditions or tolerance for risk.

The Firmwide Risk Committee sets market risk limits at firmwide and product levels and our Securities Division Risk Committee sets sub-limits for market-making and investing activities at a business level. The purpose of the firmwide limits is to assist senior management in controlling the firm's overall risk profile. Sub-limits set the desired maximum amount of exposure that may be managed by any particular business on a day-to-day basis without additional levels of senior management approval, effectively leaving day-to-day trading decisions to individual desk managers and traders. Accordingly, sub-limits are a management tool designed to ensure appropriate escalation rather than to establish maximum risk tolerance. Sub-limits also distribute risk among various businesses in a manner that is consistent with their level of activity and client demand, taking into account the relative performance of each area.

Our market risk limits are monitored daily by Market Risk Management, which is responsible for identifying and escalating, on a timely basis, instances where limits have been exceeded. The business-level limits that are set by the Securities Division Risk Committee are subject to the same scrutiny and limit escalation policy as the firmwide limits.

When a risk limit has been exceeded (e.g., due to changes in market conditions, such as increased volatilities or changes in correlations), it is reported to the appropriate risk committee and a discussion takes place with the relevant desk managers, after which either the risk position is reduced or the risk limit is temporarily or permanently increased.

Model Review and Validation

Our VaR and stress testing models are subject to review and validation by our independent model validation group at least annually. This review includes:

Ÿ

a critical evaluation of the model, its theoretical soundness and adequacy for intended use;

Ÿ

verification of the testing strategy utilized by the model developers to ensure that the model functions as intended; and

Ÿ

verification of the suitability of the calculation techniques incorporated in the model.

Our VaR and stress testing models are regularly reviewed and enhanced in order to incorporate changes in the composition of positions included in the firm's market risk measures, as well as variations in market conditions. Prior to implementing significant changes to our assumptions and/or models, we perform model validation and test runs. Significant changes to our VaR and stress testing models are reviewed with the firm's chief risk officer and chief financial officer, and approved by the Firmwide Risk Committee.

We evaluate the accuracy of our VaR model through daily backtesting (i.e., comparing daily trading net revenues to the VaR measure calculated as of the prior business day) at the firmwide level and for each of our businesses and major regulated subsidiaries.

104 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Systems

We have made a significant investment in technology to monitor market risk including:

Ÿ

an independent calculation of VaR and stress measures;

Ÿ

risk measures calculated at individual position levels;

Ÿ

attribution of risk measures to individual risk factors of each position;

Ÿ

the ability to report many different views of the risk measures (e.g., by desk, business, product type or legal entity); and

Ÿ

the ability to produce ad hoc analyses in a timely manner.

Metrics

We analyze VaR at the firmwide level and a variety of more detailed levels, including by risk category, business, and region. The tables below present, by risk category, average daily VaR and period-end VaR, as well as the high and low VaR for the period. Diversification effect in the tables below represents the difference between total VaR and the sum of the VaRs for the four risk categories. This effect arises because the four market risk categories are not perfectly correlated.

Average Daily VaR

in millions

Risk Categories

Year Ended December
2013 2012 2011

Interest rates

$ 63 $ 78 $  94

Equity prices

32 26 33

Currency rates

17 14 20

Commodity prices

19 22 32

Diversification effect

(51 (54 (66

Total

$ 80 $ 86 $113

Our average daily VaR decreased to $80 million in 2013 from $86 million in 2012, primarily reflecting a decrease in the interest rates category principally due to lower levels of volatility and decreased exposures. This decrease was partially offset by an increase in the equity prices category principally due to increased exposures.

Our average daily VaR decreased to $86 million in 2012 from $113 million in 2011, reflecting a decrease in the interest rates category due to lower levels of volatility, decreases in the commodity prices and currency rates categories due to reduced exposures and lower levels of volatility, and a decrease in the equity prices category due to reduced exposures. These decreases were partially offset by a decrease in the diversification benefit across risk categories.

Year-End VaR and High and Low VaR

in millions

Risk Categories

As of December

Year Ended

December 2013

2013 2012 High Low

Interest rates

$ 59 $ 64 $  77 $54

Equity prices

35 22 90  1 20

Currency rates

16 9 37 9

Commodity prices

20 18 25 13

Diversification effect

(45 (42

Total

$ 85 $ 71 $127 $64

1.

Reflects the impact of temporarily increased exposures as a result of equity underwriting transactions.

Our daily VaR increased to $85 million as of December 2013 from $71 million as of December 2012, primarily reflecting increases in the equity prices and currency rates categories, principally due to increased exposures. These increases were partially offset by a decrease in the interest rates category primarily due to decreased exposures.

During 2013 and 2012, the firmwide VaR risk limit was not exceeded and in each year it was reduced on one occasion due to lower levels of volatility.

Goldman Sachs 2013 Form 10-K 105
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The chart below reflects the VaR over the last four quarters.

Daily trading net revenues are compared with VaR calculated as of the end of the prior business day. Trading losses incurred on a single day did not exceed our 95% one-day VaR during 2013 or 2012 (i.e., a VaR exception).

During periods in which the firm has significantly more positive net revenue days than net revenue loss days, we expect to have fewer VaR exceptions because, under normal conditions, our business model generally produces positive net revenues. In periods in which our franchise

revenues are adversely affected, we generally have more loss days, resulting in more VaR exceptions. In addition, VaR backtesting is performed against total daily market-making revenues, including bid/offer net revenues, which are more likely than not to be positive by their nature.

The chart below presents the frequency distribution of our daily trading net revenues for substantially all positions included in VaR for 2013.

106 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Sensitivity Measures

Certain portfolios and individual positions are not included in VaR because VaR is not the most appropriate risk measure. Other sensitivity measures we use to analyze market risk are described below.

10% Sensitivity Measures. The table below presents market risk for inventory positions that are not included in VaR. The market risk of these positions is determined by estimating the potential reduction in net revenues of a 10% decline in the underlying asset value. Equity positions below relate to private and restricted public equity securities, including interests in funds that invest in corporate equities and real estate and interests in hedge funds, which are included in "Financial instruments owned, at fair value." Debt positions include interests in funds that invest in corporate mezzanine and senior debt instruments, loans backed by commercial and residential real estate, corporate bank loans and other corporate debt, including acquired portfolios of distressed loans. These debt positions are included in "Financial instruments owned, at fair value." See Note 6 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about cash instruments. These measures do not reflect diversification benefits across asset categories or across other market risk measures.

Asset Categories 10% Sensitivity
Amount as of December
in millions 2013 2012

Equity  1

$2,256 $2,471

Debt

1,522 1,676

Total

$3,778 $4,147

1.

December 2012 includes $208 million related to our investment in the ordinary shares of ICBC, which was sold in the first half of 2013.

Credit Spread Sensitivity on Derivatives and Borrowings. VaR excludes the impact of changes in counterparty and our own credit spreads on derivatives as well as changes in our own credit spreads on unsecured borrowings for which the fair value option was elected. The estimated sensitivity to a one basis point increase in credit spreads (counterparty and our own) on derivatives was a gain of $4 million and $3 million (including hedges) as of December 2013 and December 2012, respectively. In addition, the estimated sensitivity to a one basis point increase in our own credit spreads on unsecured borrowings for which the fair value option was elected was a gain of $8 million and $7 million (including hedges) as of December 2013 and December 2012, respectively. However, the actual net impact of a change in our own credit spreads is also affected by the liquidity, duration and convexity (as the sensitivity is not linear to changes in yields) of those unsecured borrowings for which the fair value option was elected, as well as the relative performance of any hedges undertaken.

Interest Rate Sensitivity. As of December 2013 and December 2012, the firm had $14.90 billion and $6.50 billion, respectively, of loans held for investment which were accounted for at amortized cost and included in "Receivables from customers and counterparties," substantially all of which had floating interest rates. As of December 2013 and December 2012, the estimated sensitivity to a 100 basis point increase in interest rates on such loans was $136 million and $62 million, respectively, of additional interest income over a 12-month period, which does not take into account the potential impact of an increase in costs to fund such loans. See Note 8 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about loans held for investment.

Goldman Sachs 2013 Form 10-K 107
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Financial Statement Linkages to Market Risk Measures

The firm employs a variety of risk measures, each described in the respective sections above, to monitor market risk across the consolidated statements of financial condition and consolidated statements of earnings. The related gains and losses on these positions are included in "Market making," "Other principal transactions," "Interest income" and "Interest expense." The table below presents certain categories in our consolidated statement of financial condition and the market risk measures used to assess those assets and liabilities. Certain categories on the consolidated statement of financial condition are incorporated in more than one risk measure.

Categories on the
Consolidated Statement of
Financial Condition Included
in Market Risk Measure

Market Risk Measure

Securities segregated for regulatory and other purposes, at fair value

Ÿ     VaR

Collateralized agreements

Ÿ     Securities purchased under agreements to resell, at fair value

Ÿ     Securities borrowed, at fair value

Ÿ     VaR

Receivables from customers and counterparties

Ÿ     Certain secured loans, at fair value

Ÿ     VaR

Ÿ     Loans held for investment, at amortized cost

Ÿ     Interest Rate Sensitivity

Financial instruments owned, at fair value

Ÿ     VaR

Ÿ     10% Sensitivity Measures

Ÿ     Credit Spread
Sensitivity - Derivatives

Collateralized financings

Ÿ     Securities sold under agreements to repurchase, at fair value

Ÿ     Securities loaned, at
fair value

Ÿ     Other secured financings, at fair value

Ÿ     VaR

Financial instruments sold, but
not yet purchased, at fair value

Ÿ     VaR

Ÿ     Credit Spread
Sensitivity - Derivatives

Unsecured short-term borrowings and unsecured long-term borrowings,
at fair value

Ÿ     VaR

Ÿ     Credit Spread
Sensitivity - Borrowings

Other Market Risk Considerations

In addition, as of December 2013 and December 2012, we had commitments and held loans for which we have obtained credit loss protection from Sumitomo Mitsui Financial Group, Inc. See Note 18 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for further information about such lending commitments.

Additionally, we make investments accounted for under the equity method and we also make direct investments in real estate, both of which are included in "Other assets" in the consolidated statements of financial condition. Direct investments in real estate are accounted for at cost less accumulated depreciation. See Note 12 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K for information on "Other assets."

108 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Credit Risk Management

Overview

Credit risk represents the potential for loss due to the default or deterioration in credit quality of a counterparty (e.g., an OTC derivatives counterparty or a borrower) or an issuer of securities or other instruments we hold. Our exposure to credit risk comes mostly from client transactions in OTC derivatives and loans and lending commitments. Credit risk also comes from cash placed with banks, securities financing transactions (i.e., resale and repurchase agreements and securities borrowing and lending activities) and receivables from brokers, dealers, clearing organizations, customers and counterparties.

Credit Risk Management, which is independent of the revenue-producing units and reports to the firm's chief risk officer, has primary responsibility for assessing, monitoring and managing credit risk at the firm. The Credit Policy Committee and the Firmwide Risk Committee establish and review credit policies and parameters. In addition, we hold other positions that give rise to credit risk (e.g., bonds held in our inventory and secondary bank loans). These credit risks are captured as a component of market risk measures, which are monitored and managed by Market Risk Management, consistent with other inventory positions. The firm also enters into derivatives to manage market risk exposures. Such derivatives also give rise to credit risk which is monitored and managed by Credit Risk Management.

Policies authorized by the Firmwide Risk Committee and the Credit Policy Committee prescribe the level of formal approval required for the firm to assume credit exposure to a counterparty across all product areas, taking into account any applicable netting provisions, collateral or other credit risk mitigants.

Credit Risk Management Process

Effective management of credit risk requires accurate and timely information, a high level of communication and knowledge of customers, countries, industries and products. Our process for managing credit risk includes:

Ÿ

approving transactions and setting and communicating credit exposure limits;

Ÿ

monitoring compliance with established credit exposure limits;

Ÿ

assessing the likelihood that a counterparty will default on its payment obligations;

Ÿ

measuring the firm's current and potential credit exposure and losses resulting from counterparty default;

Ÿ

reporting of credit exposures to senior management, the Board and regulators;

Ÿ

use of credit risk mitigants, including collateral and hedging; and

Ÿ

communication and collaboration with other independent control and support functions such as operations, legal and compliance.

As part of the risk assessment process, Credit Risk Management performs credit reviews which include initial and ongoing analyses of our counterparties. A credit review is an independent judgment about the capacity and willingness of a counterparty to meet its financial obligations. For substantially all of our credit exposures, the core of our process is an annual counterparty review. A counterparty review is a written analysis of a counterparty's business profile and financial strength resulting in an internal credit rating which represents the probability of default on financial obligations to the firm. The determination of internal credit ratings incorporates assumptions with respect to the counterparty's future business performance, the nature and outlook for the counterparty's industry, and the economic environment. Senior personnel within Credit Risk Management, with expertise in specific industries, inspect and approve credit reviews and internal credit ratings.

Our global credit risk management systems capture credit exposure to individual counterparties and on an aggregate basis to counterparties and their subsidiaries (economic groups). These systems also provide management with comprehensive information on our aggregate credit risk by product, internal credit rating, industry, country and region.

Goldman Sachs 2013 Form 10-K 109
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Risk Measures and Limits

We measure our credit risk based on the potential loss in an event of non-payment by a counterparty. For derivatives and securities financing transactions, the primary measure is potential exposure, which is our estimate of the future exposure that could arise over the life of a transaction based on market movements within a specified confidence level. Potential exposure takes into account netting and collateral arrangements. For loans and lending commitments, the primary measure is a function of the notional amount of the position. We also monitor credit risk in terms of current exposure, which is the amount presently owed to the firm after taking into account applicable netting and collateral.

We use credit limits at various levels (counterparty, economic group, industry, country) to control the size of our credit exposures. Limits for counterparties and economic groups are reviewed regularly and revised to reflect changing appetites for a given counterparty or group of counterparties. Limits for industries and countries are based on the firm's risk tolerance and are designed to allow for regular monitoring, review, escalation and management of credit risk concentrations.

Stress Tests/Scenario Analysis

We use regular stress tests to calculate the credit exposures, including potential concentrations that would result from applying shocks to counterparty credit ratings or credit risk factors (e.g., currency rates, interest rates, equity prices). These shocks include a wide range of moderate and more extreme market movements. Some of our stress tests include shocks to multiple risk factors, consistent with the occurrence of a severe market or economic event. In the case of sovereign default, we estimate the direct impact of the default on our sovereign credit exposures, changes to our credit exposures arising from potential market moves in response to the default, and the impact of credit market deterioration on corporate borrowers and counterparties that may result from the sovereign default. Unlike potential exposure, which is calculated within a specified confidence level, with a stress test there is generally no assumed probability of these events occurring.

We run stress tests on a regular basis as part of our routine risk management processes and conduct tailored stress tests on an ad hoc basis in response to market developments. Stress tests are regularly conducted jointly with the firm's market and liquidity risk functions.

Risk Mitigants

To reduce our credit exposures on derivatives and securities financing transactions, we may enter into netting agreements with counterparties that permit us to offset receivables and payables with such counterparties. We may also reduce credit risk with counterparties by entering into agreements that enable us to obtain collateral from them on an upfront or contingent basis and/or to terminate transactions if the counterparty's credit rating falls below a specified level. We monitor the fair value of the collateral on a daily basis to ensure that our credit exposures are appropriately collateralized. We seek to minimize exposures where there is a significant positive correlation between the creditworthiness of our counterparties and the market value of collateral we receive.

For loans and lending commitments, depending on the credit quality of the borrower and other characteristics of the transaction, we employ a variety of potential risk mitigants. Risk mitigants include: collateral provisions, guarantees, covenants, structural seniority of the bank loan claims and, for certain lending commitments, provisions in the legal documentation that allow the firm to adjust loan amounts, pricing, structure and other terms as market conditions change. The type and structure of risk mitigants employed can significantly influence the degree of credit risk involved in a loan.

When we do not have sufficient visibility into a counterparty's financial strength or when we believe a counterparty requires support from its parent company, we may obtain third-party guarantees of the counterparty's obligations. We may also mitigate our credit risk using credit derivatives or participation agreements.

Credit Exposures

As of December 2013, our credit exposures decreased as compared with December 2012, primarily reflecting decreases in OTC derivatives, cash and securities financing exposures, partially offset by an increase in loans and lending commitments. The percentage of our credit exposure arising from non-investment-grade counterparties (based on our internally determined public rating agency equivalents) increased from December 2012, primarily reflecting an increase in loans and lending commitments. During 2013, counterparty defaults primarily occurred within OTC derivatives and loans and lending commitments. The number of counterparty defaults during 2013 remained low and was less than 0.5% of all counterparties. Counterparty defaults were higher in 2013 (there were approximately 10 additional defaults compared with 2012), primarily related to OTC derivatives. Estimated losses associated with these defaults were higher compared with the prior year and were not material to the firm.

110 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

The firm's credit exposures are described further below.

Cash and Cash Equivalents. Cash and cash equivalents include both interest-bearing and non-interest-bearing deposits. To mitigate the risk of credit loss, we place substantially all of our deposits with highly-rated banks and central banks.

OTC Derivatives. The firm's credit exposure on OTC derivatives arises primarily from our market-making activities. The firm, as a market maker, enters into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. The firm also enters into derivatives to manage market risk exposures. We manage our credit exposure on OTC derivatives using the credit risk process, measures, limits and risk mitigants described above.

Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement. Derivatives are accounted for at fair value, net of cash collateral received or posted under enforceable credit support agreements. We generally enter into OTC derivatives transactions under bilateral collateral arrangements with daily exchange of collateral.

As credit risk is an essential component of fair value, the firm includes a credit valuation adjustment (CVA) in the fair value of derivatives to reflect counterparty credit risk,

as described in Note 7 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K. CVA is a function of the present value of expected exposure, the probability of counterparty default and the assumed recovery upon default.

The tables below present the distribution of our exposure to OTC derivatives by tenor, based on expected duration for mortgage-related credit derivatives and generally on remaining contractual maturity for other derivatives, both before and after the effect of collateral and netting agreements. Receivable and payable balances for the same counterparty across tenor categories are netted under enforceable netting agreements, and cash collateral received is netted under enforceable credit support agreements. Receivable and payable balances with the same counterparty in the same tenor category are netted within such tenor category. Net credit exposure in the tables below represents OTC derivative assets, all of which are included in "Financial instruments owned, at fair value," less cash collateral and the fair value of securities collateral, primarily U.S. government and federal agency obligations and non-U.S. government and agency obligations, received under credit support agreements, which management considers when determining credit risk, but such collateral is not eligible for netting under U.S. GAAP. The categories shown reflect our internally determined public rating agency equivalents.

As of December 2013

in millions

Credit Rating Equivalent


0 - 12
Months


1 - 5
Years


5 Years
or Greater

Total Netting
OTC
Derivative
Assets


Net Credit
Exposure

AAA/Aaa

$     473 $  1,470 $    2,450 $    4,393 $    (2,087 $  2,306 $  2,159

AA/Aa2

3,463 7,642 29,926 41,031 (27,918 13,113 8,596

A/A2

12,693 25,666 29,701 68,060 (48,803 19,257 11,188

BBB/Baa2

4,377 10,112 24,013 38,502 (29,213 9,289 5,952

BB/Ba2 or lower

2,972 6,188 4,271 13,431 (5,357 8,074 6,381

Unrated

1,289 45 238 1,572 (9 1,563 1,144

Total

$25,267 $51,123 $  90,599 $166,989 $(113,387 $53,602 $35,420
As of December 2012

in millions

Credit Rating Equivalent


0 - 12
Months


1 - 5
Years


5 Years
or Greater

Total Netting
OTC
Derivative
Assets


Net Credit
Exposure

AAA/Aaa

$     494 $  1,934 $    2,778 $    5,206 $    (1,476 $  3,730 $  3,443

AA/Aa2

4,631 7,483 20,357 32,471 (16,026 16,445 10,467

A/A2

13,422 26,550 42,797 82,769 (57,868 24,901 16,326

BBB/Baa2

7,032 12,173 27,676 46,881 (32,962 13,919 4,577

BB/Ba2 or lower

2,489 5,762 7,676 15,927 (9,116 6,811 4,544

Unrated

326 927 358 1,611 (13 1,598 1,259

Total

$28,394 $54,829 $101,642 $184,865 $(117,461 $67,404 $40,616

Goldman Sachs 2013 Form 10-K 111
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Lending and Financing Activities. We manage the firm's lending and financing activities using the credit risk process, measures, limits and risk mitigants described above. Other lending positions, including secondary trading positions, are risk-managed as a component of market risk.

Ÿ

Lending Activities. The firm's lending activities include lending to investment-grade and non-investment-grade corporate borrowers. Loans and lending commitments associated with these activities are principally used for operating liquidity and general corporate purposes or in connection with contingent acquisitions. The firm's lending activities also include extending loans to borrowers that are secured by commercial and other real estate. See the tables below for further information about our credit exposures associated with these lending activities.

Ÿ

Securities Financing Transactions. The firm enters into securities financing transactions in order to, among other things, facilitate client activities, invest excess cash, acquire securities to cover short positions and finance certain firm activities. The firm bears credit risk related to resale agreements and securities borrowed only to the extent that cash advanced or the value of securities pledged or delivered to the counterparty exceeds the value of the collateral received. The firm also has credit exposure on repurchase agreements and securities loaned to the extent that the value of securities pledged or delivered to the counterparty for these transactions exceeds the amount of cash or collateral received. Securities collateral obtained for securities financing transactions primarily includes U.S. government and federal agency obligations and non-U.S. government and agency obligations. We manage our credit risk on securities financing transactions using the credit risk process, measures, limits and risk mitigants described above. We had approximately $29 billion and $37 billion as of December 2013 and December 2012, respectively, of credit exposure related to securities financing transactions reflecting both netting agreements and collateral that management considers when determining credit risk.

Ÿ

Other Credit Exposures. The firm is exposed to credit risk from its receivables from brokers, dealers and clearing organizations and customers and counterparties. Receivables from brokers, dealers and clearing organizations are primarily comprised of initial cash margin placed with clearing organizations and receivables related to sales of securities which have traded, but not yet settled. These receivables generally have minimal credit risk due to the low probability of clearing organization default and the short-term nature of receivables related to securities settlements. Receivables from customers and counterparties are generally comprised of collateralized receivables related to customer securities transactions and generally have minimal credit risk due to both the value of the collateral received and the short-term nature of these receivables. Our net credit exposure related to these activities was approximately $18 billion as of both December 2013 and December 2012, and was primarily comprised of initial margin (both cash and securities) placed with clearing organizations.

In addition, the firm extends other loans and lending commitments to its private wealth clients that are generally longer-term in nature and are primarily secured by residential real estate or other assets. The gross exposure related to such loans and lending commitments was approximately $11 billion and $7 billion as of December 2013 and December 2012, respectively. The fair value of the collateral received against such loans and lending commitments exceeded the gross exposure as of both December 2013 and December 2012.

Credit Exposure by Industry, Region and Credit Quality

The tables below present the firm's credit exposures related to cash, OTC derivatives, and loans and lending commitments (excluding Securities Financing Transactions and Other Credit Exposures above) broken down by industry, region and credit quality.

112 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Credit Exposure by Industry

Cash OTC Derivatives Loans and Lending
Commitments  1
As of December As of December As of December
in millions 2013 2012 2013 2012 2013 2012

Asset Managers & Funds

$       91 $        - $10,812 $10,552 $    2,075 $  1,673

Banks, Brokers & Other Financial Institutions

9,742 10,507 11,448 21,310 11,824 6,192

Consumer Products, Non-Durables & Retail

- - 3,448 1,516 16,477 13,304

Government & Central Banks

51,294 62,162 13,446 14,729 1,897 1,782

Healthcare & Education

- - 2,157 3,764 12,283 7,717

Insurance

- - 2,771 4,214 3,085 3,199

Natural Resources & Utilities

- - 4,781 4,383 17,970 16,360

Real Estate

6 - 388 381 8,550 3,796

Technology, Media, Telecommunications & Services

- - 2,124 2,016 16,740 17,674

Transportation

- - 673 1,207 6,729 6,557

Other

- - 1,554 3,332 7,695 4,650

Total

$61,133 $72,669 $53,602 $67,404 $105,325 $82,904

Credit Exposure by Region

Cash OTC Derivatives Loans and Lending
Commitments  1
As of December As of December As of December
in millions 2013 2012 2013 2012 2013 2012

Americas

$54,470 $65,193 $21,423 $32,968 $  77,710 $59,792

Europe, Middle East and Africa

2,143 1,683 25,983 26,739 25,222 21,104

Asia

4,520 5,793 6,196 7,697 2,393 2,008

Total

$61,133 $72,669 $53,602 $67,404 $105,325 $82,904

Credit Exposure by Credit Quality

Cash OTC Derivatives Loans and Lending
Commitments  1

in millions

Credit Rating Equivalent

As of December As of December As of December
2013 2012 2013 2012 2013 2012

AAA/Aaa

$50,519 $59,825 $  2,306 $  3,730 $    3,079 $  2,179

AA/Aa2

2,748 6,356 13,113 16,445 7,001 7,220

A/A2

6,821 5,068 19,257 24,901 23,250 21,901

BBB/Baa2

527 326 9,289 13,919 30,496 26,313

BB/Ba2 or lower

518 1,094 8,074 6,811 41,114 25,291

Unrated

- - 1,563 1,598 385 -

Total

$61,133 $72,669 $53,602 $67,404 $105,325 $82,904

1.

Includes approximately $23 billion and $12 billion of loans as of December 2013 and December 2012, respectively, and approximately $82 billion and $71 billion of lending commitments as of December 2013 and December 2012, respectively. Excludes certain loans and related lending commitments that are risk-managed as part of market risk using VaR and sensitivity measures.

Goldman Sachs 2013 Form 10-K 113
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Selected Country Exposures

There have been continuing concerns about European sovereign debt risk and its impact on the European banking system and a number of European member states have experienced significant credit deterioration. The most pronounced market concerns relate to Greece, Ireland, Italy, Portugal and Spain. The tables below present our credit exposure (both gross and net of hedges) to all sovereigns, financial institutions and corporate counterparties or borrowers in these countries. Credit exposure represents the potential for loss due to the default or deterioration in credit quality of a counterparty or borrower. In addition, the tables include the market exposure of our long and short inventory for which the issuer or underlier is located in these countries.

Market exposure represents the potential for loss in value of our inventory due to changes in market prices. There is no overlap between the credit and market exposures in the tables below.

The country of risk is determined by the location of the counterparty, issuer or underlier's assets, where they generate revenue, the country in which they are headquartered, and/or the government whose policies affect their ability to repay their obligations.

As of December 2013
Credit Exposure Market Exposure
in millions Loans
OTC
Derivatives

Other

Gross

  Funded

Hedges

Total Net

Funded

Credit

Exposure

  Unfunded

Credit

Exposure

Total

Credit

  Exposure

Debt
Equities
and
Other


Credit
Derivatives


Total
Market
Exposure

Greece

Sovereign

$     - $   233 $  - $   233 $     (72 $   161 $     - $   161 $     12 $  - $       (2 $     10

Non-Sovereign

- 6 - 6 - 6 - 6 10 3 3 16

Total Greece

- 239 - 239 (72 167 - 167 22 3 1 26

Ireland

Sovereign

- 7 125 132 - 132 - 132 (48 - (162 (210

Non-Sovereign

373 356 127 856 (5 851 41 892 291 91 108 490

Total Ireland

373 363 252 988 (5 983 41 1,024 243 91 (54 280

Italy

Sovereign

- 1,704 2 1,706 (1,691 15 - 15 371 - 62 433

Non-Sovereign

10 527 195 732 (31 701 660 1,361 361 (13 (794 (446

Total Italy

10 2,231 197 2,438 (1,722 716 660 1,376 732 (13 (732 (13

Portugal

Sovereign

- - 103 103 - 103 - 103 (27 - (73 (100

Non-Sovereign

- 16 20 36 - 36 - 36 126 - (112 14

Total Portugal

- 16 123 139 - 139 - 139 99 - (185 (86

Spain

Sovereign

- 52 - 52 - 52 - 52 930 - 223 1,153

Non-Sovereign

1,025 230 65 1,320 (93 1,227 855 2,082 1,490 158 (1,144 504

Total Spain

1,025 282 65 1,372 (93 1,279 855 2,134 2,420 158 (921 1,657

Total

$1,408  1 $3,131  2 $637 $5,176 $(1,892 )  3 $3,284 $1,556 $4,840 $3,516 $239 $(1,891 )  3 $1,864

1.

Principally consists of loans collateralized by cash, securities and real estate.

2.

Includes the benefit of $4.4 billion of cash and U.S. Treasury securities collateral and excludes non-U.S. government and agency obligations and corporate securities collateral of $254 million.

3.

Includes written and purchased credit derivative notionals reduced by the fair values of such credit derivatives.

114 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

As of December 2012
Credit Exposure Market Exposure
in millions Loans
OTC
Derivatives

Other
Gross
Funded

Hedges
Total Net
Funded
Credit
Exposure


Unfunded
Credit
Exposure


Total
Credit
Exposure

Debt
Equities
and
Other


Credit
Derivatives


Total
Market
Exposure

Greece

Sovereign

$      - $     - $  - $     - $      - $     - $     - $     - $     30 $  - $      - $      30

Non-Sovereign

- 5 1 6 - 6 - 6 65 15 (5 75

Total Greece

- 5 1 6 - 6 - 6 95 15 (5 105

Ireland

Sovereign

- 1 103 104 - 104 - 104 8 - (150 (142

Non-Sovereign

- 126 36 162 - 162 - 162 801 74 155 1,030

Total Ireland

- 127 139 266 - 266 - 266 809 74 5 888

Italy

Sovereign

- 1,756 1 1,757 (1,714 43 - 43 (415 - (603 (1,018

Non-Sovereign

43 560 129 732 (33 699 587 1,286 434 65 (996 (497

Total Italy

43 2,316 130 2,489 (1,747 742 587 1,329 19 65 (1,599 (1,515

Portugal

Sovereign

- 141 61 202 - 202 - 202 155 - (226 (71

Non-Sovereign

- 44 2 46 - 46 - 46 168 (6 (133 29

Total Portugal

- 185 63 248 - 248 - 248 323 (6 (359 (42

Spain

Sovereign

- 75 - 75 - 75 - 75 986 - (268 718

Non-Sovereign

1,048 259 23 1,330 (95 1,235 733 1,968 1,268 83 (186 1,165

Total Spain

1,048 334 23 1,405 (95 1,310 733 2,043 2,254 83 (454 1,883

Total

$1,091  1 $2,967  2 $356 $4,414 $(1,842 )  3 $2,572 $1,320 $3,892 $3,500 $231 $(2,412 )  3 $ 1,319

1.

Principally consists of loans for which the fair value of collateral exceeds the carrying value of such loans.

2.

Includes the benefit of $6.6 billion of cash and U.S. Treasury securities collateral and excludes non-U.S. government and agency obligations and corporate securities collateral of $357 million.

3.

Includes written and purchased credit derivative notionals reduced by the fair values of such credit derivatives.

We economically hedge our exposure to written credit derivatives by entering into offsetting purchased credit derivatives with identical underlyings. Where possible, we endeavor to match the tenor and credit default terms of such hedges to that of our written credit derivatives. Substantially all purchased credit derivatives included above are bought from investment-grade counterparties domiciled outside of these countries and are collateralized with cash, U.S. Treasury securities or German government agency obligations. The gross purchased and written credit derivative notionals across the above countries for single-name and index credit default swaps (included in ‘Hedges' and ‘Credit Derivatives' in the tables above) were $154.6 billion and $148.2 billion, respectively, as of December 2013, and $179.4 billion and $168.6 billion, respectively, as of December 2012. Including netting under legally enforceable netting agreements, within each and across all of the countries above, the purchased and written credit derivative notionals for single-name and index credit

default swaps were $22.3 billion and $15.8 billion, respectively, as of December 2013, and $26.0 billion and $15.3 billion, respectively, as of December 2012. These notionals are not representative of our exposure because they exclude available netting under legally enforceable netting agreements on other derivatives outside of these countries and collateral received or posted under credit support agreements.

In credit exposure above, ‘Other' principally consists of deposits, secured lending transactions and other secured receivables, net of applicable collateral. As of December 2013 and December 2012, $11.9 billion and $4.8 billion, respectively, of secured lending transactions and other secured receivables were fully collateralized.

For information about the nature of or payout under trigger events related to written and purchased credit protection contracts see Note 7 to the consolidated financial statements in Part II, Item 8 of the 2013 Form 10-K.

Goldman Sachs 2013 Form 10-K 115
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

To supplement our regular stress tests, we conduct tailored stress tests on an ad hoc basis in response to specific market events that we deem significant. For example, in response to the Euro area debt crisis, we conducted stress tests intended to estimate the direct and indirect impact that might result from a variety of possible events involving certain European member states, including sovereign defaults and the exit of one or more countries from the Euro area. In the stress tests, described in "Market Risk Management - Stress Testing" and "Credit Risk Management - Stress Tests/Scenario Analysis," we estimated the direct impact of the event on our credit and market exposures resulting from shocks to risk factors including, but not limited to, currency rates, interest rates, and equity prices. The parameters of these shocks varied based on the scenario reflected in each stress test. We also estimated the indirect impact on our exposures arising from potential market moves in response to the event, such as the impact of credit market deterioration on corporate borrowers and counterparties along with the shocks to the risk factors described above. We reviewed estimated losses produced by the stress tests in order to understand their magnitude, highlight potential loss concentrations, and assess and mitigate our exposures where necessary.

Euro area exit scenarios included analysis of the impacts on exposure that might result from the redenomination of assets in the exiting country or countries. We also tested our operational and risk management readiness and capability to respond to a redenomination event. Constructing stress tests for these scenarios requires many assumptions about how exposures might be directly impacted and how resulting secondary market moves would indirectly impact such exposures. Given the multiple parameters involved in such scenarios, losses from such events are inherently difficult to quantify and may materially differ from our estimates.

See "Liquidity Risk Management - Modeled Liquidity Outflow," "Market Risk Management - Stress Testing" and "Credit Risk Management - Stress Tests/Scenario Analysis" for further discussion.

116 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Operational Risk Management

Overview

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Our exposure to operational risk arises from routine processing errors as well as extraordinary incidents, such as major systems failures. Potential types of loss events related to internal and external operational risk include:

Ÿ

clients, products and business practices;

Ÿ

execution, delivery and process management;

Ÿ

business disruption and system failures;

Ÿ

employment practices and workplace safety;

Ÿ

damage to physical assets;

Ÿ

internal fraud; and

Ÿ

external fraud.

We maintain a comprehensive control framework designed to provide a well-controlled environment to minimize operational risks. The Firmwide Operational Risk Committee, along with the support of regional or entity-specific working groups or committees, provides oversight of the ongoing development and implementation of our operational risk policies and framework. Operational Risk Management is a risk management function independent of our revenue-producing units, reports to the firm's chief risk officer, and is responsible for developing and implementing policies, methodologies and a formalized framework for operational risk management with the goal of minimizing our exposure to operational risk.

Operational Risk Management Process

Managing operational risk requires timely and accurate information as well as a strong control culture. We seek to manage our operational risk through:

Ÿ

the training, supervision and development of our people;

Ÿ

the active participation of senior management in identifying and mitigating key operational risks across the firm;

Ÿ

independent control and support functions that monitor operational risk on a daily basis, and implementation of extensive policies and procedures, and controls designed to prevent the occurrence of operational risk events;

Ÿ

proactive communication between our revenue-producing units and our independent control and support functions; and

Ÿ

a network of systems throughout the firm to facilitate the collection of data used to analyze and assess our operational risk exposure.

We combine top-down and bottom-up approaches to manage and measure operational risk. From a top-down perspective, the firm's senior management assesses firmwide and business level operational risk profiles. From a bottom-up perspective, revenue-producing units and independent control and support functions are responsible for risk management on a day-to-day basis, including identifying, mitigating, and escalating operational risks to senior management.

Our operational risk framework is in part designed to comply with the operational risk measurement rules under Basel II and has evolved based on the changing needs of our businesses and regulatory guidance. Our framework comprises the following practices:

Ÿ

risk identification and reporting;

Ÿ

risk measurement; and

Ÿ

risk monitoring.

Internal Audit performs an independent review of our operational risk framework, including our key controls, processes and applications, on an annual basis to assess the effectiveness of our framework.

Goldman Sachs 2013 Form 10-K 117
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Risk Identification and Reporting

The core of our operational risk management framework is risk identification and reporting. We have a comprehensive data collection process, including firmwide policies and procedures, for operational risk events.

We have established policies that require managers in our revenue-producing units and our independent control and support functions to escalate operational risk events. When operational risk events are identified, our policies require that the events be documented and analyzed to determine whether changes are required in our systems and/or processes to further mitigate the risk of future events.

In addition, our firmwide systems capture internal operational risk event data, key metrics such as transaction volumes, and statistical information such as performance trends. We use an internally-developed operational risk management application to aggregate and organize this information. Managers from both revenue-producing units and independent control and support functions analyze the information to evaluate operational risk exposures and identify businesses, activities or products with heightened levels of operational risk. We also provide periodic operational risk reports to senior management, risk committees and the Board.

Risk Measurement

We measure our operational risk exposure over a twelve-month time horizon using both statistical modeling and scenario analyses, which involve qualitative assessments of the potential frequency and extent of potential operational risk losses, for each of our businesses. Operational risk measurement incorporates qualitative and quantitative assessments of factors including:

Ÿ

internal and external operational risk event data;

Ÿ

assessments of our internal controls;

Ÿ

evaluations of the complexity of our business activities;

Ÿ

the degree of and potential for automation in our processes;

Ÿ

new product information;

Ÿ

the legal and regulatory environment;

Ÿ

changes in the markets for our products and services, including the diversity and sophistication of our customers and counterparties; and

Ÿ

the liquidity of the capital markets and the reliability of the infrastructure that supports the capital markets.

The results from these scenario analyses are used to monitor changes in operational risk and to determine business lines that may have heightened exposure to operational risk. These analyses ultimately are used in the determination of the appropriate level of operational risk capital to hold.

Risk Monitoring

We evaluate changes in the operational risk profile of our businesses, including changes in business mix or jurisdictions in which we operate, by monitoring the factors noted above at a firmwide level. We have both detective and preventive internal controls, which are designed to reduce the frequency and severity of operational risk losses and the probability of operational risk events. We monitor the results of assessments and independent internal audits of these internal controls.

Certain Risk Factors That May Affect Our Businesses

We face a variety of risks that are substantial and inherent in our businesses, including market, liquidity, credit, operational, legal, regulatory and reputational risks. For a discussion of how management seeks to manage some of these risks, see "Overview and Structure of Risk Management." A summary of the more important factors that could affect our businesses follows. For a further discussion of these and other important factors that could affect our businesses, financial condition, results of operations, cash flows and liquidity, see "Risk Factors" in Part I, Item 1A of the 2013 Form 10-K.

Ÿ

Our businesses have been and may continue to be adversely affected by conditions in the global financial markets and economic conditions generally.

Ÿ

Our businesses have been and may be adversely affected by declining asset values. This is particularly true for those businesses in which we have net "long" positions, receive fees based on the value of assets managed, or receive or post collateral.

Ÿ

Our businesses have been and may be adversely affected by disruptions in the credit markets, including reduced access to credit and higher costs of obtaining credit.

Ÿ

Our market-making activities have been and may be affected by changes in the levels of market volatility.

Ÿ

Our investment banking, client execution and investment management businesses have been adversely affected and may continue to be adversely affected by market uncertainty or lack of confidence among investors and CEOs due to general declines in economic activity and other unfavorable economic, geopolitical or market conditions.

118 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management's Discussion and Analysis

Ÿ

Our investment management business may be affected by the poor investment performance of our investment products.

Ÿ

We may incur losses as a result of ineffective risk management processes and strategies.

Ÿ

Our liquidity, profitability and businesses may be adversely affected by an inability to access the debt capital markets or to sell assets or by a reduction in our credit ratings or by an increase in our credit spreads.

Ÿ

Conflicts of interest are increasing and a failure to appropriately identify and address conflicts of interest could adversely affect our businesses.

Ÿ

Group Inc. is a holding company and is dependent for liquidity on payments from its subsidiaries, many of which are subject to restrictions.

Ÿ

Our businesses, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold.

Ÿ

Concentration of risk increases the potential for significant losses in our market-making, underwriting, investing and lending activities.

Ÿ

The financial services industry is both highly competitive and interrelated.

Ÿ

We face enhanced risks as new business initiatives lead us to transact with a broader array of clients and counterparties and expose us to new asset classes and new markets.

Ÿ

Derivative transactions and delayed settlements may expose us to unexpected risk and potential losses.

Ÿ

Our businesses may be adversely affected if we are unable to hire and retain qualified employees.

Ÿ

Our businesses and those of our clients are subject to extensive and pervasive regulation around the world.

Ÿ

We may be adversely affected by increased governmental and regulatory scrutiny or negative publicity.

Ÿ

A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our businesses, result in the disclosure of confidential information, damage our reputation and cause losses.

Ÿ

Substantial legal liability or significant regulatory action against us could have material adverse financial effects or cause us significant reputational harm, which in turn could seriously harm our business prospects.

Ÿ

The growth of electronic trading and the introduction of new trading technology may adversely affect our business and may increase competition.

Ÿ

Our commodities activities, particularly our physical commodities activities, subject us to extensive regulation, potential catastrophic events and environmental, reputational and other risks that may expose us to significant liabilities and costs.

Ÿ

In conducting our businesses around the world, we are subject to political, economic, legal, operational and other risks that are inherent in operating in many countries.

Ÿ

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk are set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview and Structure of Risk Management" in Part II, Item 7 of the 2013 Form 10-K.

Goldman Sachs 2013 Form 10-K 119
Table of Contents

Item 8.    Financial Statements and Supplementary Data

INDEX

Page No.

Management's Report on Internal Control over Financial Reporting

121

Report of Independent Registered Public Accounting Firm

122

Consolidated Financial Statements

123

Consolidated Statements of Earnings

123

Consolidated Statements of Comprehensive Income

124

Consolidated Statements of Financial Condition

125

Consolidated Statements of Changes in Shareholders' Equity

126

Consolidated Statements of Cash Flows

127

Notes to Consolidated Financial Statements

128

Note 1.       Description of Business

128

Note 2.       Basis of Presentation

128

Note 3.       Significant Accounting Policies

129

Note 4.        Financial Instruments Owned, at Fair Value and Financial Instruments Sold, But Not Yet

Purchased, at Fair Value

134

Note 5.       Fair Value Measurements

136

Note 6.       Cash Instruments

138

Note 7.       Derivatives and Hedging Activities

147

Note 8.       Fair Value Option

164

Note 9.       Collateralized Agreements and Financings

173

Note 10.     Securitization Activities

178

Note 11.     Variable Interest Entities

181

Note 12.     Other Assets

185

Note 13.     Goodwill and Identifiable Intangible Assets

186

Note 14.     Deposits

189

Note 15.     Short-Term Borrowings

190

Note 16.     Long-Term Borrowings

190

Note 17.     Other Liabilities and Accrued Expenses

193

Note 18.     Commitments, Contingencies and Guarantees

194

Note 19.     Shareholders' Equity

200

Note 20.     Regulation and Capital Adequacy

203

Note 21.     Earnings Per Common Share

208

Note 22.     Transactions with Affiliated Funds

208

Note 23.     Interest Income and Interest Expense

209

Note 24.     Income Taxes

210

Note 25.     Business Segments

213

Note 26.     Credit Concentrations

217

Note 27.     Legal Proceedings

218

Note 28.     Employee Benefit Plans

225

Note 29.     Employee Incentive Plans

225

Note 30.     Parent Company

228

Supplemental Financial Information

229

Quarterly Results

229

Common Stock Price Range

230

Common Stock Performance

230

Selected Financial Data

231

Statistical Disclosures

232

120 Goldman Sachs 2013 Form 10-K
Table of Contents

Management's Report on Internal Control over Financial Reporting

Management of The Goldman Sachs Group, Inc., together with its consolidated subsidiaries (the firm), is responsible for establishing and maintaining adequate internal control over financial reporting. The firm's internal control over financial reporting is a process designed under the supervision of the firm's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the firm's financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

As of December 31, 2013, management conducted an assessment of the firm's internal control over financial reporting based on the framework established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the firm's internal control over financial reporting as of December 31, 2013 was effective.

Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the firm; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the firm's assets that could have a material effect on our financial statements.

The firm's internal control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on page 122, which expresses an unqualified opinion on the effectiveness of the firm's internal control over financial reporting as of December 31, 2013.

Goldman Sachs 2013 Form 10-K 121
Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and the Shareholders of

The Goldman Sachs Group, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Goldman Sachs Group, Inc. and its subsidiaries (the Company) at December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992)  issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing on page 121. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ P RICEWATERHOUSE C OOPERS LLP

New York, New York

February 27, 2014

122 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

Year Ended December
in millions, except per share amounts 2013 2012 2011

Revenues

Investment banking

$  6,004 $  4,941 $  4,361

Investment management

5,194 4,968 4,691

Commissions and fees

3,255 3,161 3,773

Market making

9,368 11,348 9,287

Other principal transactions

6,993 5,865 1,507

Total non-interest revenues

30,814 30,283 23,619

Interest income

10,060 11,381 13,174

Interest expense

6,668 7,501 7,982

Net interest income

3,392 3,880 5,192

Net revenues, including net interest income

34,206 34,163 28,811

Operating expenses

Compensation and benefits

12,613 12,944 12,223

Brokerage, clearing, exchange and distribution fees

2,341 2,208 2,463

Market development

541 509 640

Communications and technology

776 782 828

Depreciation and amortization

1,322 1,738 1,865

Occupancy

839 875 1,030

Professional fees

930 867 992

Insurance reserves

176 598 529

Other expenses

2,931 2,435 2,072

Total non-compensation expenses

9,856 10,012 10,419

Total operating expenses

22,469 22,956 22,642

Pre-tax earnings

11,737 11,207 6,169

Provision for taxes

3,697 3,732 1,727

Net earnings

8,040 7,475 4,442

Preferred stock dividends

314 183 1,932

Net earnings applicable to common shareholders

$  7,726 $  7,292 $  2,510

Earnings per common share

Basic

$  16.34 $  14.63 $    4.71

Diluted

15.46 14.13 4.51

Average common shares outstanding

Basic

471.3 496.2 524.6

Diluted

499.6 516.1 556.9

The accompanying notes are an integral part of these consolidated financial statements.

Goldman Sachs 2013 Form 10-K 123
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Year Ended December
in millions 2013 2012 2011

Net earnings

$8,040 $7,475 $4,442

Other comprehensive income/(loss) adjustments, net of tax:

Currency translation

(50 (89 (55

Pension and postretirement liabilities

38 168 (145

Available-for-sale securities

(327 244 (30

Cash flow hedges

8 - -

Other comprehensive income/(loss)

(331 323 (230

Comprehensive income

$7,709 $7,798 $4,212

The accompanying notes are an integral part of these consolidated financial statements.

124 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

As of December
in millions, except share and per share amounts 2013 2012

Assets

Cash and cash equivalents

$  61,133 $  72,669

Cash and securities segregated for regulatory and other purposes (includes $31,937 and $30,484 at fair value as of December 2013 and December 2012, respectively)

49,671 49,671

Collateralized agreements:

Securities purchased under agreements to resell and federal funds sold (includes $161,297 and $141,331 at fair value as of December 2013 and December 2012, respectively)

161,732 141,334

Securities borrowed (includes $60,384 and $38,395 at fair value as of December 2013 and December 2012, respectively)

164,566 136,893

Receivables from brokers, dealers and clearing organizations

23,840 18,480

Receivables from customers and counterparties (includes $7,416 and $7,866 at fair value as of December 2013 and December 2012, respectively)

88,935 72,874

Financial instruments owned, at fair value (includes $62,348 and $67,177 pledged as collateral as of December 2013 and December 2012, respectively)

339,121 407,011

Other assets (includes $18 and $13,426 at fair value as of December 2013 and December 2012, respectively)

22,509 39,623

Total assets

$911,507 $938,555

Liabilities and shareholders' equity

Deposits (includes $7,255 and $5,100 at fair value as of December 2013 and December 2012, respectively)

$  70,807 $  70,124

Collateralized financings:

Securities sold under agreements to repurchase, at fair value

164,782 171,807

Securities loaned (includes $973 and $1,558 at fair value as of December 2013 and December 2012, respectively)

18,745 13,765

Other secured financings (includes $23,591 and $30,337 at fair value as of December 2013 and December 2012, respectively)

24,814 32,010

Payables to brokers, dealers and clearing organizations

5,349 5,283

Payables to customers and counterparties

199,416 189,202

Financial instruments sold, but not yet purchased, at fair value

127,426 126,644

Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings (includes $19,067 and $17,595 at fair value as of December 2013 and December 2012, respectively)

44,692 44,304

Unsecured long-term borrowings (includes $11,691 and $12,593 at fair value as of December 2013 and December 2012, respectively)

160,965 167,305

Other liabilities and accrued expenses (includes $388 and $12,043 at fair value as of December 2013 and December 2012, respectively)

16,044 42,395

Total liabilities

833,040 862,839

Commitments, contingencies and guarantees

Shareholders' equity

Preferred stock, par value $0.01 per share; aggregate liquidation preference of $7,200 and $6,200 as of December 2013
and December 2012, respectively

7,200 6,200

Common stock, par value $0.01 per share; 4,000,000,000 shares authorized, 837,219,068 and 816,807,400 shares issued as of December 2013 and December 2012, respectively, and 446,359,012 and 465,148,387 shares outstanding as of December 2013 and December 2012, respectively

8 8

Restricted stock units and employee stock options

3,839 3,298

Nonvoting common stock, par value $0.01 per share; 200,000,000 shares authorized, no shares issued and outstanding

- -

Additional paid-in capital

48,998 48,030

Retained earnings

71,961 65,223

Accumulated other comprehensive loss

(524 (193

Stock held in treasury, at cost, par value $0.01 per share; 390,860,058 and 351,659,015 shares as of December 2013 and December 2012, respectively

(53,015 (46,850

Total shareholders' equity

78,467 75,716

Total liabilities and shareholders' equity

$911,507 $938,555

The accompanying notes are an integral part of these consolidated financial statements.

Goldman Sachs 2013 Form 10-K 125
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders' Equity

Year Ended December
in millions 2013 2012 2011

Preferred stock

Balance, beginning of year

$   6,200 $   3,100 $   6,957

Issued

1,000 3,100 -

Repurchased

- - (3,857

Balance, end of year

7,200 6,200 3,100

Common stock

Balance, beginning of year

8 8 8

Issued

- - -

Balance, end of year

8 8 8

Restricted stock units and employee stock options

Balance, beginning of year

3,298 5,681 7,706

Issuance and amortization of restricted stock units and employee stock options

2,017 1,368 2,863

Delivery of common stock underlying restricted stock units

(1,378 (3,659 (4,791

Forfeiture of restricted stock units and employee stock options

(79 (90 (93

Exercise of employee stock options

(19 (2 (4

Balance, end of year

3,839 3,298 5,681

Additional paid-in capital

Balance, beginning of year

48,030 45,553 42,103

Issuance of common stock

- - 103

Delivery of common stock underlying share-based awards

1,483 3,939 5,160

Cancellation of restricted stock units in satisfaction of withholding tax requirements

(599 (1,437 (1,911

Preferred stock issuance costs

(9 (13 -

Excess net tax benefit/(provision) related to share-based awards

94 (11 138

Cash settlement of share-based compensation

(1 (1 (40

Balance, end of year

48,998 48,030 45,553

Retained earnings

Balance, beginning of year

65,223 58,834 57,163

Net earnings

8,040 7,475 4,442

Dividends and dividend equivalents declared on common stock and restricted stock units

(988 (903 (769

Dividends declared on preferred stock

(314 (183 (2,002

Balance, end of year

71,961 65,223 58,834

Accumulated other comprehensive loss

Balance, beginning of year

(193 (516 (286

Other comprehensive income/(loss)

(331 323 (230

Balance, end of year

(524 (193 (516

Stock held in treasury, at cost

Balance, beginning of year

(46,850 (42,281 (36,295

Repurchased

(6,175 (4,637 (6,036

Reissued

40 77 65

Other

(30 (9 (15

Balance, end of year

(53,015 (46,850 (42,281

Total shareholders' equity

$ 78,467 $ 75,716 $ 70,379

The accompanying notes are an integral part of these consolidated financial statements.

126 Goldman Sachs 2013 Form 10-K
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Year Ended December
in millions 2013 2012 2011

Cash flows from operating activities

Net earnings

$   8,040 $   7,475 $   4,442

Adjustments to reconcile net earnings to net cash provided by/(used for) operating activities

Depreciation and amortization

1,322