Conference Presentation, Panel
Risk Management - Goldman Sachs 2020 Investor Day
- The firm aims to integrate risk into firm-wide strategy, utilizing a disciplined risk-reward approach to price risk and earn appropriate returns while maintaining an empowered and independent risk function reporting directly to the board.
- Risk teams intend to review strategic plans against risk appetite to calibrate strategies for prudent growth, with the ability to slow down initiatives if market conditions necessitate; the firm does not anticipate a high risk of recession but intends to ensure the organization is prepared for the next economic downturn over a five to ten year cycle.
- The firm plans to enhance cyber processes and infrastructure to address rising inherent cybersecurity risks, including investing in a centralized team of security experts, an expert second-line cyber risk team, penetration tests, a bug bounty program, tabletop exercises, and data recovery capabilities for critical applications.
- Specific adverse stress scenarios, including Brexit, trade wars, and oil shocks, will be utilized with a double magnitude for credit spread widening tests, while the firm intends to evolve severely adverse scenarios to align with the firm's risk profile and the economy under CCAR process oversight.
- Climate change is being integrated into risk management discussions, credit underwriting, and stress test design as a recurring agenda item for the board's risk committees.
- The firm has developed and is enhancing a reputational risk framework that includes regional groups led by legal and compliance managing directors for early transaction vetting, escalation of specific transactions to a firm-wide reputational risk committee, and firm-wide training.
- A strong tone at the top and consistent messaging will be maintained across all employees, supported by sophisticated surveillance tools to detect patterns in communications and conduct, alongside a well-advertised and expanded business integrity and whistleblower program.
- The firm intends to conduct specialized training for senior executives on transaction review and approval, utilize an active Insider Threat Team to prevent misconduct, and monitor conduct metrics to provide tailored reports directly and regularly to the board.
- No new business can be launched without sign-off from control functions, ensuring compliance officers are embedded from day one in steering committees, new technology stacks, and acquisitions like United Capital.
- The firm intends to grow the balance sheet loans accounted for as held for investment or on an accrual basis while maintaining fair valuations across all assets and liabilities, with an independent group verifying all valuations and an ability to shift position intent from held for investment to held for sale for hedging or selling purposes.
- The firm expects to operate in the 2.5% G-SIB surcharge bucket through the end of 2019, though the footprint may increase with balance sheet growth; the firm announced a CET1 target between 13% and 13.5% and intends to size a management buffer between 50 and 100 basis points above regulatory minimums.
- A 5% stress capital buffer (SCB) is being targeted based on current proposed rules and CCAR results, pending the final stress capital buffer rule and Basel III revisions from the Federal Reserve.
- The firm intends to balance capital deployment to meet client needs while ensuring products or asset classes are not overcapitalized relative to others to maintain market liquidity, and will await the finalization of regulatory rules to ensure they are applied cohesively.
- The firm faces increased focus on legal and privacy risks stemming from Brexit, new privacy legislation, and the LIBOR transition, requiring infrastructure readiness to handle increased volumes in AML, consumer, and transaction banking.
- Specific strategic initiatives include resolving the 1MDB matter as quickly as possible, evolving regional supervision frameworks to embed compliance culture, and hiring specific credit card expertise for the legal department prior to the Apple card launch.