Table	of	Contents

# UNITED	STATES	SECURITIES	AND	EXCHANGE	COMMISSION

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

THE	SECURITIES	EXCHANGE	ACT	OF	1934

For	the	fiscal	year	ended	December	31,	2012

# The	Goldman	Sachs	Group,	Inc.

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of incorporation	or	organization)

200	West	Street

(Address	of	principal	executive	offices)

(I.R.S.	Employer Identification	No.)

(Zip	Code)

(Registrant's	telephone	number,	including	area	code)

Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

# Title	of	each	class:

Common	stock,	par	value	$.01	per	share

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

Non-Cumulative	Preferred	Stock,	Series	A

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

Non-Cumulative	Preferred	Stock,	Series	B

Non-Cumulative	Preferred	Stock,	Series	C

Non-Cumulative	Preferred	Stock,	Series	D

Name	of	each	exchange	on	which	registered:

New	York	Stock	Exchange

Non-Cumulative	Preferred	Stock,	Series	I 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.

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	15(d)	of	the	Act.

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.

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).

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

As	of	June	30,	2012,	the	aggregate	market	value	of	the	common	stock	of	the	registrant	held	by	non-affiliates	of	the	registrant	was	approximately	$45.3	billion.

As	of	February	15,	2013,	there	were	465,503,097	shares	of	the	registrant's	common	stock	outstanding.

Documents	incorporated	by	reference:	Portions	of	The	Goldman	Sachs	Group,	Inc.'s	Proxy	Statement	for	its	2013	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.

ANNUAL	REPORT	ON	FORM	10-K	FOR	THE	FISCAL	YEAR	ENDED	DECEMBER	31,	2012

# INDEX

| Form	10-K	Item	Number | Form	10-K	Item	Number | Page	No. |
| :--- | :--- | :--- |
| PART\tI |  | 1 |
| Item\t1 | Business | 1 |
|  | Introduction | 1 |
|  | Our\tBusiness\tSegments\tand\tSegment\tOperating\tResults | 1 |
|  | \t\t\t\tInvestment\tBanking | 2 |
|  | \t\t\t\tInstitutional\tClient\tServices | 3 |
|  | \t\t\t\tInvesting\t&\tLending | 5 |
|  | \t\t\t\tInvestment\tManagement | 5 |
|  | Business\tContinuity\tand\tInformation\tSecurity | 7 |
|  | Employees | 7 |
|  | Competition | 7 |
|  | Regulation | 8 |
|  | Available\tInformation | 22 |
|  | Cautionary\tStatement\tPursuant\tto\tthe\tU.S.\tPrivate\tSecurities\tLitigation\tReform\tAct\tof\t1995 | 23 |
| Item\t1A | Risk\tFactors | 24 |
| Item\t1B | Unresolved\tStaff\tComments | 38 |
| Item\t2 | Properties | 38 |
| Item\t3 | Legal\tProceedings | 38 |
| Item\t4 | \t Mine\tSafety\tDisclosures | 38 |
|  | Executive\tOfficers\tof\tThe\tGoldman\tSachs\tGroup,\tInc. | 39 |
| PART\tII |  | 40 |
| Item\t5 | \t Market\tfor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 40 |
| Item\t6 | Selected\tFinancial\tData | 40 |
| Item\t7 | \t Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 41 |
| Item\t7A | \t Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 113 |
| Item\t8 | Financial\tStatements\tand\tSupplementary\tData | 114 |
| Item\t9 | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 239 |
| Item\t9A | Controls\tand\tProcedures | 239 |
| Item\t9B | \t Other\tInformation | 239 |
| PART\tIII |  | 239 |
| Item\t10 | Directors,\tExecutive\tOfficers\tand\tCorporate\tGovernance | 239 |
| Item\t11 | Executive\tCompensation | 239 |
| Item\t12 | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 240 |
| Item\t13 | Certain\tRelationships\tand\tRelated\tTransactions,\tand\tDirector\tIndependence | 240 |
| Item\t14 | Principal\tAccountant\tFees\tand\tServices | 240 |
| PART\tIV |  | 241 |
| Item\t15 | Exhibits\tand\tFinancial\tStatement\tSchedules | 241 |

THE	GOLDMAN	SACHS	GROUP,	INC.	AND	SUBSIDIARIES

# PART	I

# 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.

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	2012,	we	had	offices	in	over	30	countries	and	49%	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	2012,	we	generated	41%	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 this	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.

The	table	below	presents	our	segment	operating	results.

|  |  | Year	Ended	December	^1 | Year	Ended	December	^1 |  | %	of	2012 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  | Net |
| $\tin\tmillions |  | 2012 | 2011 | 2010 | Revenues |
| Investment\tBanking | Net\trevenues | \t$\t\t4,926 | \t$\t\t4,355 | \t$\t\t4,810 | 15% |
|  | Operating\texpenses | 3,330 | 2,995 | 3,459 |  |
|  | Pre-tax\tearnings | \t$\t\t1,596 | \t$\t\t1,360 | \t$\t\t1,351 |  |
| Institutional\tClient\tServices | Net\trevenues | \t$18,124 | \t$17,280 | \t$21,796 | 53% |
|  | Operating\texpenses | 12,480 | 12,837 | 14,994 |  |
|  | Pre-tax\tearnings | \t$\t\t5,644 | \t$\t\t4,443 | \t$\t\t6,802 |  |
| Investing\t&\tLending | Net\trevenues | \t$\t\t5,891 | \t$\t\t2,142 | \t$\t\t7,541 | 17% |
|  | Operating\texpenses | 2,666 | 2,673 | 3,361 |  |
|  | Pre-tax\tearnings/(loss) | \t$\t\t3,225 | \t$\t\t\t\t(531) | \t$\t\t4,180 |  |
| Investment\tManagement | Net\trevenues | \t$\t\t5,222 | \t$\t\t5,034 | \t$\t\t5,014 | 15% |
|  | Operating\texpenses | 4,294 | 4,020 | 4,082 |  |
|  | Pre-tax\tearnings | $928 | \t$\t\t1,014 | \t$\t\t\t\t\t932 |  |
| Total | Net\trevenues | \t$34,163 | \t$28,811 | \t$39,161 |  |
|  | Operating\texpenses\t^2 | 22,956 | 22,642 | 26,269 |  |
|  | Pre-tax\tearnings | \t$11,207 | \t$\t\t6,169 | \t$12,892 |  |

1.Financial	information	concerning	our	business	segments	for	2012,	2011	and	2010	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	this	Form	10-K.	See	Note	25	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this Form	10-K	for	a	summary	of	our	total	net	revenues,	pre-tax	earnings	and	net	earnings	by	geographic	region.

2.Total	operating	expenses	includes	the	following	expenses	that	have	not	been	allocated	to	our	segments:	(i)	charitable	contributions	of	$169	million,	$103	million	and	$345	million	for	the	years	ended December	 2012,	 December	 2011	 and	 December	 2010,	 respectively;	 and	 (ii)	 real	 estate-related	 exit	 costs	 of	 $17	 million,	 $14	 million	 and	 $28	 million	 for	 the	 years	 ended	 December	 2012, December	2011	and	December	2010,	respectively.	Operating	expenses	related	to	net	provisions	for	litigation	and	regulatory	proceedings,	previously	not	allocated	to	our	segments,	have	now	been allocated.	This	allocation	is	consistent	with	the	manner	in	which	management	currently	views	the	performance	of	our	segments.	Reclassifications	have	been	made	to	previously	reported	segment amounts	to	conform	to	the	current	presentation.

# 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	"one-stop"	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.

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	2012,	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).

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.	Oil and	 natural	 gas,	 base,	 precious and other	 metals, electricity,	coal,	agricultural	and	other	commodity	products.

Equities.	Includes	equity	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	options,	requiring	the	commitment	of	our	capital.	In	addition,	we engage	in	insurance	activities	where	we	insure,	reinsure	and	acquire	portfolios	of insurance	risk.

We	also	structure	and	execute	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.	We	 are	 a	 Designated	 Market	 Maker	 (DMM)	 for stocks	traded	on	the	NYSE,	a	registered	market	maker	for	ETFs	on	NYSE	Arca, a	market	maker	in	listed	options	on	the	International	Securities	Exchange,	the Chicago	Board	Options	Exchange,	NYSE	Arca,	the	Boston	Options	Exchange, the	 Philadelphia	 Stock	 Exchange,	 the	 Miami	 Options	 Exchange	 and	 NYSE MKT,	and	a	market	maker	in	futures	and	options	on	the	Chicago	Mercantile Exchange	and	the	Chicago	Board	of	Trade.

Commissions	and	Fees.	We	generate	commissions	and	fees	from	executing and	clearing	institutional	client	transactions	on	major	stock,	options	and	futures exchanges	 worldwide.	 We	 increasingly	 provide	 our	 clients	 with	 access	 to electronic	"low-touch"	equity	trading	platforms,	and	electronic	trades	account for	the	majority	of	our	equity	trading	activity.	However,	a	majority	of	our	net revenues	in	these	activities	continue	to	be	derived	from	our	traditional	"high- touch"	handling	of	more	complex	trades.	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.

ICBC.	We	have	an	investment	in	the	ordinary	shares	of	ICBC,	the	largest	bank in	China.

Equity	Securities	(excluding ICBC).	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	 our	 consolidated	 investment entities,	which	are	entities	we	hold	for	investment	purposes	strictly	for	capital appreciation.	 These	 entities	 have	 a	 defined	 exit	 strategy	 and	 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,	including power	generation	facilities.

# 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,	 private	 bank	 deposits	 and	 assets	 related	 to	 advisory	 relationships where	we	earn	a	fee	for	advisory	and	other	services,	but	do	not	have	discretion over	 the	 assets.	 Assets	 under	 supervision	 do	 not	 include	 the	 self-directed brokerage	accounts	of	our	clients.

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.

The	tables	below	present	a	breakdown	of	assets	under	supervision, including assets	under	management	by	asset	class	and	by	distribution	channel.

# Business	Continuity	and	Information	Security

Business	continuity	and	information	security,	including	cybersecurity,	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	2012,	we	had	32,400	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.

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	Financial	Services	Authority	(FSA)	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	this	Form	10-K	for	more	information	on	the	regulation	of	our compensation	practices.

# Regulation

As	 a	 participant	 in	 the	 banking,	 securities,	 investment	 management,	 OTC derivatives,	 futures	 and	 options	 and	 insurance	 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	rules	that	will	be	adopted	by	the Federal	Reserve	Board,	the	FDIC,	the	SEC,	the	CFTC	and	other	agencies	to implement	the	legislation,	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	 assess	 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).

# 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,	 insurance	 companies regulated	by	state	insurance	authorities	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	and	do	not	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,	 insurance	 underwriting	 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.

We	may	face	additional	 limitations	on	our	activities	upon	 implementation	of those	provisions	of	the	Dodd-Frank	Act	referred	to	as	the	"Volcker	Rule,"	which will	prohibit	"proprietary	trading"	(but	will	allow	activities	such	as	underwriting, market-making	related	activities	and	risk-mitigation	hedging	activities)	and	will limit	the	sponsorship	of,	and	investment	in,	hedge	funds	and	private	equity	funds by	 banking	 entities,	 including	 bank	 holding	 companies.	The	Volcker	 Rule	 is expected	to	also	limit	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." In	October	2011,	the	proposed	rules	to	implement	the	Volcker	Rule	were	issued and	included	an	extensive	request	for	comments	on	the	proposal.	The	proposed rules	are	highly	complex,	and	many	aspects	of	the	Volcker	Rule	remain	unclear. The	full	impact	of	the	rule	on	us	will	depend	upon	the	detailed	scope	of	the prohibitions,	 permitted	 activities,	 exceptions	 and	 exclusions,	 and	 will	 not	 be known	 with	 certainty	 until	 the	 rules	 are	 finalized	 and	 market	 practices	 and structures	develop	under	the	final	rules.	Currently,	companies	are	expected	to	be required	to	be	in	compliance	by	July	2014	(subject	to	possible	extensions).

While	 many	 aspects	 of	 the	 Volcker	 Rule	 remain	 unclear,	 we	 evaluated	 the prohibition	on	"proprietary	trading"	and	determined	that	businesses	that	engage in	"bright	line"	proprietary	trading	are	most	likely	to	be	prohibited.	In	2011	and 2010,	 we	 liquidated	 substantially	 all	 of	 our	 Principal	 Strategies	 and	 Global Macro	Proprietary	trading	positions.

In	addition,	we	have	evaluated	the	limitations	on	sponsorship	of,	and	investments in,	 hedge	 funds	 and	 private	 equity	 funds.	 We	 earn	 management	 fees	 and incentive	fees	for	investment	management	services	from	hedge	funds	and	private equity	funds,	which	are	included	in	our	Investment	Management	segment.	We also	make	investments	in	funds,	and	the	gains	and	losses	from	these	investments are	included	in	our	Investing	&	Lending	segment;	these	gains	and	losses	will	be impacted	by	the	Volcker	Rule.	The	Volcker	Rule	limitation	on	investments	in hedge	funds	and	private	equity	funds	requires	us	to	reduce	our	investment	in each	hedge	fund	and	private	equity	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.	Our	aggregate	net	revenues	from	our	investments	in	hedge funds	 and	 private	 equity	 funds	 were	 not	 material	 to	 our	 aggregate	 total	 net revenues	over	the	period	from	1999	through	2012.	We	continue	to	manage	our existing	private	equity	funds,	taking	into	account	the	transition	periods	under	the Volcker	Rule.	With	respect	to	our	hedge	funds,	we	currently	plan	to	comply	with the	 Volcker	 Rule	 by	 redeeming	 certain	 of	 our	 interests	 in	 the	 funds.	 Since March	2012,	we	have	been	redeeming	up	to	approximately	10%	of	certain	hedge funds'	total	redeemable	units	per	quarter,	and	expect	to	continue	to	do	so	through June	2014.	In	addition,	we	have	limited	our	initial	investment	to	3%	for	certain new	investments	in	hedge	funds	and	private	equity	funds.

The	Dodd-Frank	Act	also	establishes	the	CFPB,	which	has	broad	authority	to regulate	providers	of	credit,	payment	and	other	consumer	financial	products	and services,	and	has	oversight	over	certain	of	our	products	and	services.

# Capital	and	Liquidity	Requirements

Capital	 requirements	 are	 increasingly	 a	 factor	 in	 determining	 risk	 levels	 and assessing	business	opportunities	and	strategies.	As	a	bank	holding	company,	we are	subject	to	consolidated	regulatory	capital	requirements	administered	by	the Federal	Reserve	Board.

GS	 Bank	 USA	 is	 subject	 to	 broadly	 similar	 capital	 requirements.	 Under	 the Federal	 Reserve	 Board's	 capital	 adequacy	 requirements	 and	 the	 regulatory framework	for	prompt	corrective	action	that	is	applicable	to	GS	Bank

USA,	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	Note	20	to	the	consolidated	financial	statements	in	Part	II, Item	8	of	this	Form	10-K	for	information	on	our	Tier	1	capital	ratio,	Tier	1 capital,	total	capital	ratio,	total	capital,	risk-weighted	assets	(RWAs)	and	Tier	1 leverage	ratio,	and	for	a	discussion	of	minimum	required	ratios.	For	information on	our	Tier	1	common	ratio,	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	this	Form	10-K.

Changes	in	Capital	Requirements.	Changes	to	the	market	risk	capital	rules of	the	U.S.	federal	bank	regulatory	agencies	(the	Agencies)	became	effective	on January	1,	2013.	These	changes	require	the	addition	of	several	new	model-based capital	 requirements,	 as	 well	 as	 an	 increase	 in	 capital	 requirements	 for securitization	 positions,	 and	 are	 designed	 to	 implement	 the	 new	 market	 risk framework	of	 the	Basel	Committee,	as	well	as	 the	prohibition	on	 the	use	of external	credit	ratings,	as	required	by	the	Dodd-Frank	Act.	This	revised	market risk	framework	is	a	significant	part	of	the	regulatory	capital	changes	that	will ultimately	be	included	in	our	capital	ratios	under	the	guidelines	issued	by	the Basel	Committee	in	December	2010	(Basel	3).	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	this Form 10-K for	 information	 on	 the	 impact	 of	 these	 rules	 on	 our	 Tier 1 common	ratio.

We	 are	 also	 currently	 working	 to	 implement	 the	 requirements	 set	 out	 in	 the Agencies'	 Risk-Based	 Capital	 Standards:	 Advanced	 Capital	 Adequacy Framework	—	Basel	2,	as	applicable	to	us	as	a	bank	holding	company	and	as	an advanced	 approach	 banking	 organization	 (Basel	 2).	 These	 requirements	 are based	 on	 the	 advanced	 approaches	 under	 the	 Revised	 Framework	 for	 the International	Convergence	of	Capital	Measurement	and	Capital	Standards	issued by	 the	Basel	Committee.	Basel	2,	among	other	 things,	revises	 the	regulatory capital	framework	for	credit	risk	and	equity	investments,	and	introduces	a	new operational	 risk	 capital	 requirement.	 We	 will	 adopt	 Basel 2 once	 we	 are approved	to	do	so	by	regulators.	Our	capital	adequacy	ratio	will	also	be	impacted by	the	further	changes	outlined	below	under	Basel	3	and	provisions	of	the	Dodd- Frank	Act.

The	"Collins	Amendment"	of	the	Dodd-Frank	Act	requires	advanced	approach banking	organizations	to	continue,	upon	adoption	of	Basel	2,	to	calculate	risk- based	capital	ratios	under	both	Basel	2	and	the	Federal	Reserve	Board's	risk- based	 capital	 requirements	 currently	 applicable	 to	 bank	 holding	 companies (Basel	1),	which	are	based	on	the	1988	Capital	Accord	of	the	Basel	Committee. For	each	of	the	Tier	1	and	Total	capital	ratios,	the	lower	of	the	Basel	1	and Basel	 2	 ratios	 calculated	 will	 be	 used	 to	 determine	 whether	 such	 advanced approach	 banking	 organizations	 meet	 their	 minimum	 risk-based	 capital requirements.	 Furthermore,	 the	 June	 2012	 proposals	 described	 below	 include provisions	which,	if	enacted	as	proposed,	would	modify	these	minimum	risk- based	capital	requirements.

In	 June	 2012,	 the	 Agencies	 proposed	 further	 modifications	 to	 their	 capital adequacy	regulations	to	address	aspects	of	both	the	Dodd-Frank	Act	and	Basel	3. If	 enacted	 as	 proposed,	 the	 most	 significant	 changes	 that	 would	 impact	 us include	(i)	revisions	to	the	definition	of	Tier	1	capital,	including	new	deductions from	Tier	1	capital,	(ii)	higher	minimum	capital	and	leverage	ratios,	(iii)	a	new minimum	ratio	of	Tier	1	common	equity	to	RWAs,	(iv)	new	capital	conservation and	counter-cyclical	capital	buffers,	(v)	an	additional	leverage	ratio	that	includes measures	of	off-balance	sheet	exposures,	(vi)	revisions	to	the	methodology	for calculating	 RWAs,	 particularly	 for	 credit	 risk	 capital	 requirements	 for derivatives	and	(vii)	a	new

"standardized	 approach"	 to	 the	 calculation	 of	 RWAs	 that	 would	 replace	 the Federal	 Reserve's	 current	 Basel 1 risk-based	 capital	 framework	 in	 2015, including	 for	 purposes	 of	 calculating	 the	 requisite	 capital	 floor	 under	 the Collins	Amendment.

In	November	2012,	the	Agencies	announced	that	the	proposed	effective	date	of January 1, 2013	 for	 these	 modifications	 would	 be	 deferred,	 but	 have	 not indicated	a	revised	effective	date.	These	proposals	incorporate	the	phase-out	of Tier	1	capital	treatment	for	our	junior	subordinated	debt	issued	to	trusts;	such capital	 would	 instead	 be	 eligible	 as	 Tier 2 capital.	 Under	 the	 Collins Amendment,	this	phase-out	was	scheduled	to	begin	on	January	1,	2013.	Due	to the	aforementioned	deferral	of	the	effective	date	of	the	proposed	capital	rules, however,	the	application	of	this	phase-out	remains	uncertain	at	this	time.

Both	the	Basel	Committee	and	U.S.	banking	regulators	implementing	the	Dodd- Frank	Act	have	indicated	that	they	will	impose	more	stringent	capital	standards on	systemically	important	financial	institutions.	In	November	2011,	the	Basel Committee	 published	 its	 final	 provisions	 for	 assessing	 the	 global	 systemic importance	of	banking	institutions	and	the	range	of	additional	Tier	1	common equity	that	should	be	maintained	by	banking	institutions	deemed	to	be	globally systemically	 important.	 The	 additional	 capital	 for	 these	 institutions	 would initially	range	from	1%	to	2.5%	of	Tier	1	common	equity	and	could	be	as	much as	3.5%	for	a	banking	institution	that	increases	its	systemic	footprint	(e.g.,	by increasing	 total	 assets).	 In	 November	 2012,	 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	Tier	1	common	equity	as	a globally	systemically	important	banking	institution	under	the	Basel	Committee's methodology,	 based	 on	 2011	 financial	 data.	 The	 final	 determination	 of	 the amount	of	additional	Tier	1	common	equity	that	we	will	be	required	to	hold	will 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	 globally	 systemically	 important	 banking institutions	will	be	required	to	meet	the	capital	surcharges	on	a	phased-in	basis from	2016	through	2019.

In	October	2012,	the	Basel	Committee	also	published	its	final	provisions	for calculating	incremental	capital	requirements	for	domestic	systemically	important banking	 institutions.	 The	 provisions	 are	 complementary	 to	 the	 framework outlined	above	for	global	systemically	 important	banking	 institutions,	but	are more	 principles-based	 in	 order	 to	 provide	 an	 appropriate	 degree	 of	 national discretion.	The	impact	of	these	provisions	on	the	regulatory	capital	requirements of	GS	Bank	USA	and	other	of	our	subsidiaries,	including	GSI,	will	depend	on how	they	are	implemented	by	the	banking	and	non-banking	regulators	in	the United	States	and	other	jurisdictions.

During	the	last	year,	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."	The	full	impact	of	these	developments	on	the	firm will	not	be	known	with	certainty	until	after	any	resulting	rules	are	finalized.

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.	 The	 proposed	 rules	 would	 apply	 to	 bank	 holding companies	with	$50	billion	or	more	in	total	consolidated	assets	such	as	us,	as well	as	systemically	important	nonbank	financial	institutions.	With	respect	to	the enhanced	prudential	standards,	the	proposed	rules	address,	among	other	things, risk-based	capital	and	leverage	requirements,	liquidity	requirements,	overall	risk management	 requirements	 and	 concentration/credit	 exposure	 limits.	 The proposed	 rules	 do	 not	 include	 additional	 capital	 requirements	 for	 globally systemically	important	banking	institutions	but	contemplate	the	Federal	Reserve Board's	 adopting	 such	 requirements.	 The	 proposed	 rules	 require	 increased involvement	 by	 boards	 of	 directors	 in	 liquidity	 and	 risk	 management.	 The proposed	early	remediation	rules	are	modeled	on	the	prompt	corrective	action regime,	described	below,	but	are	designed	to	require

action	beginning	in	earlier	stages	of	a	company's	financial	distress	by	mandating action	on	the	basis	of	a	range	of	triggers,	including	capital	and	leverage,	stress test	results,	liquidity	and	risk	management.	In	addition,	the	proposed	enhanced prudential	 standards	 impose	 single-counterparty	 credit	 limits,	 including	 more stringent	requirements	for	credit	exposure	among	major	financial	 institutions, which	(together	with	other	provisions	incorporated	into	the	Basel	3	capital	rules) may	affect	our	ability	to	transact	or	hedge	with	other	financial	institutions.	Other provisions	in	the	June	2012	proposals	discussed	above	may	affect	our	ability	to make	markets	in	the	stock	of	other	financial	institutions.	Although	many	of	the proposals	mirror	initiatives	to	which	bank	holding	companies	are	already	subject, their	 full	 impact	 on	 us	 will	 not	 be	 known	 with	 certainty	 until	 the	 rules	 are finalized	and	market	practices	and	structures	develop	under	the	final	rules.

In	October	2012,	the	Federal	Reserve	Board	issued	final	rules	implementing	the requirements	of	the	Dodd-Frank	Act	concerning	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,	such	as	us,	as	well	as	designated	nonbank	financial	companies.	The	stress test	rules	require	increased	involvement	by	boards	of	directors	in	stress	testing and,	 beginning	 in	 March	 2013,	 public	 disclosure	 of	 the	 results	 of	 both	 the Federal	Reserve	Board's	annual	stress	tests	and	a	bank	holding	company's	semi- annual	internal	stress	tests.	Certain	stress	test	requirements	are	also	applicable	to GS	Bank	USA,	as	discussed	below.

The	 interaction	 among	 the	 Dodd-Frank	 Act,	 other	 reform	 initiatives contemplated	by	the	Agencies,	the	Basel	Committee's	proposed	and	announced changes	 and	 other	 proposed	 or	 announced	 changes	 from	 other	 governmental entities	and	regulators	(including	the	European	Union	(EU)	and	the	FSA)	adds further	uncertainty	to	our	future	capital	and	liquidity	requirements	and	those	of our	subsidiaries.

Liquidity	Ratios	under	Basel	3.	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	3	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 equal	to	the	entity's	expected	net	cash	outflow	for	a	30-day	time	horizon	(or,	if greater,	25%	of	its	expected	total	cash	outflow)	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.	While	 the principles	behind	 the	new	framework	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,	 including	as	 the	Agencies	propose	and	adopt	 the Basel	3	liquidity	framework	in	the	United	States.

We	also	expect	that	liquidity	requirements	applicable	to	us	and	several	of	our subsidiaries	will	be	impacted	in	the	future	by	the	various	developments	arising from	 the	 Basel	 Committee,	 the	 Dodd-Frank	 Act	 and	 actions	 by	 other governmental	entities	and	regulators.

# 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.	Under	rules adopted	 by	 the	 Federal	 Reserve	 Board	 in	 November	 2011,	 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	2012	Comprehensive	Capital	Analysis	and Review	submission,	the	Federal	Reserve	Board	informed	us	that	it	did	not	object to	our	proposed	capital	actions	through	the	first	quarter	of	2013,	including	the repurchase	of	outstanding	common	stock	and	increases	in	our	quarterly	common stock	dividend.

Federal	and	state	law	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.

In	addition,	certain	of	Group	Inc.'s	non-bank	subsidiaries	are	or	will	become subject	 to	 separate	 regulatory	 limitations	 on	 dividends	 and	 distributions, including	 our	 broker-dealer,	 swap-related	 and	 insurance	 subsidiaries	 as described	below.

# 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.

# Guarantees

Group	Inc.	has,	subject	to	certain	exceptions,	guaranteed	the	payment	obligations of	GS	Bank	USA,	along	with	those	of	GS&Co.	and	Goldman	Sachs	Execution	& Clearing,	L.P.	(GSEC).

# 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	 Third	 Capital	 Requirements	 Directive includes	compensation	provisions	designed	to	implement	the	Financial	Stability Board's	 compensation	 standards	 within	 the	 EU.	 Regulators	 in	 a	 number	 of countries,	including	the	United	Kingdom,	France	and	Germany,	have	adopted compensation	 regulations	 applicable	 to	 financial	 institutions	 pursuant	 to	 this Directive.	 In	 addition,	 the	 European	 Parliament	 has	 proposed	 further compensation	rules	to	be	included	in	the	Fourth	Capital	Requirements	Directive. 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	will	restrict	our	flexibility	with	respect	to	the	manner	in	which	we	may structure	compensation.

# 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,	beginning	in July	 2013	 (subject	 to	 possible	 extensions),	 will	 prevent	 us	 from	 conducting certain	 swaps-related	 activities	 through	 GS	 Bank	 USA	 or	 another	 insured depository	institution	subsidiary,	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.	These	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	 have	 recently	 been amended	to	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.

# 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.

See	Note	20	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this Form	10-K	for	information	on	the	calculation	of	GS	Bank	USA's	capital	ratios under	Basel	1	and	for	a	discussion	of	minimum	required	ratios.

GS	 Bank	 USA	 computes	 its	 capital	 ratios	 in	 accordance	 with	 the	 regulatory capital	 requirements	 currently	 applicable	 to	 state	 member	 banks,	 which	 are based	 on	 Basel 1, as	 implemented	 by	 the	 Federal	 Reserve	 Board.	 On January	1,	2013,	GS	Bank	USA	also	adopted	the	revised	market	risk	regulatory capital	framework	outlined	above.

GS	Bank	USA	will	adopt	Basel	2	once	it	is	approved	to	do	so	by	regulators.	In addition,	the	capital	requirements	for	GS	Bank	USA	are	expected	to	be	impacted by	 the	 June	 2012	 proposed	 modifications	 to	 the	Agencies'	 capital	 adequacy regulations	outlined	above,	including	the	requirement	for	a	floor	to	the	advanced risk-based	 capital	 ratios.	 If	 enacted	 as	 proposed,	 these	 proposals	 would	 also change	the	regulatory	framework	for	prompt	corrective	action	that	is	applicable to	GS	Bank	USA	by,	among	other	things,	introducing	a	common	equity	Tier	1 ratio	requirement,	increasing	the	minimum	Tier	1	capital	ratio	requirement	and introducing	 a	 supplementary	 leverage	 ratio	 as	 a	 component	 of	 the	 prompt corrective	action	analysis.

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.

# Insolvency	of	an	Insured	Depository	Institution	or	a	Bank	Holding Company

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	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.

# Resolution	Plan

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.	 We	 submitted	 our resolution	plan	to	the	regulators	on	June	29,	2012.	GS	Bank	USA	also	submitted its	resolution	plan	on	June	29,	2012,	as	required	by	the	FDIC.

# 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	this	Form	10-K.

Our	exchange-based	market-making	activities	are	subject	to	extensive	regulation by	a	number	of	securities	exchanges.	As	a	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	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	except	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.

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,	including	certain forward	contracts,	options,	certain	loan	participations	and	guarantees	of	swaps, subject	to	certain	exceptions,	and	relate	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.	Certain	of	the	requirements,	including	registration	of	swap dealers	 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.	The	CFTC	has	finalized	a	number	of	other	implementing rules	and	laid	out	a	series	of	implementation	deadlines	in	2013	covering	rules	for business	conduct	standards	for	swap	dealers	and	clearing	requirements.

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.

Both	agencies	have	proposed,	but	not	yet	finalized,	rules	that	would	govern	the design	of	new	trading	venues	for	swaps	and	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.	However,	 the	full	 impact	of	 the	various	U.S.	and	non-U.S. regulatory	developments	in	this	area	will	not	be	known	with	certainty	until	the rules	are	 implemented	and	market	practices	and	structures	develop	under	 the final	rules.

Final	rules	have	not	been	adopted	by	the	CFTC	or	proposed	by	the	SEC	with respect	 to	 derivative	 activities	 outside	 the	 United	 States.	 Under	 the	 CFTC's proposed	rules,	a	non-U.S.	entity	may	need	to	register	as	a	swap	dealer	if	it effects	swap	transactions	with	U.S.	persons,	subject	to	certain	exceptions.

Similar	regulations	have	been	proposed	or	adopted	in	jurisdictions	outside	the United	States	(such	as	 the	European	Market	Infrastructure	Regulation,	which took	 effect	 in	 2012	 subject	 to	 ongoing	 implementation),	 including	 the introduction	 of	 standardized	 execution	 and	 clearing,	 margining	 and	 reporting requirements	for	OTC	derivatives.	In	July	2012	and	February	2013,	the	Basel Committee	 and	 the	 International	 Organization	 of	 Securities	 Commissions released	 consultative	 documents	 proposing	 margin	 requirements	 for	 non- centrally-cleared	derivatives.

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 power	generation	interests	and	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	this	Form	10-K.

# Insurance	Regulation

Our	 U.S.	 insurance	 subsidiaries	 are	 subject	 to	 state	 insurance	 regulation	 and oversight	in	the	states	in	which	they	are	domiciled	and	in	the	other	states	in which	they	are	licensed,	and	Group	Inc.	is	subject	to	oversight	as	an	insurance holding	company	in	states	where	our	insurance	subsidiaries	are	domiciled.	State insurance	 regulations	 limit	 the	 ability	 of	 our	 insurance	 subsidiaries	 to	 pay dividends	to	Group	Inc.	in	certain	circumstances,	and	could	require	regulatory approval	for	any	change	in	"control"	of	Group	Inc.,	which	may	include	control of	 10%	 or	 more	 of	 our	 voting	 stock.	 In	 addition,	 certain	 of	 our	 insurance subsidiaries	are	regulated	by	the	Bermuda	Monetary	Authority,	and	Rothesay Life	Limited	(Rothesay	Life),	our	U.K.	insurance	subsidiary,	is	regulated	by	the FSA.	As	of	December	2012,	all	of	our	insurance	subsidiaries	were	in	compliance with	applicable	capital	requirements.

# 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.	 SEC	 officials	 have	 stated	 publicly	 that	 the	 SEC	 may propose	changes	to	the	regulation	of	money	market	funds,	which	could	include requiring	 a	 floating	 net	 asset	 value,	 capital	 buffers	 and/or	 restrictions	 on redemptions.	Certain	of	such	changes,	if	proposed	and	adopted,	may	negatively impact	our	money	market	business.

# 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	broker-dealer	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.	From time	 to	 time,	 our	 subsidiaries	 have	 been	 subject	 to	 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	 FSA.	 GSI,	 our	 regulated	 U.K.	 broker-dealer subsidiary,	 is	subject	 to	 the	capital	requirements	 imposed	by	 the	FSA.	Other subsidiaries,	including	Goldman	Sachs	International	Bank	(GSIB),	our	regulated U.K.	bank,	are	also	regulated	by	the	FSA.	As	of	December	2012,	GSI	and	GSIB were	in	compliance	with	the	FSA	capital	requirements.

Various	other	Goldman	Sachs	entities	are	regulated	by	the	banking,	insurance 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	 Federal	 Financial Markets	Service	and	the	Central	Bank	of	the	Russian	Federation	and	the	Swiss Financial	Market	Supervisory	Authority.

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	 increased	capital requirements	for	market	risk	for	certain	of	our	EU	subsidiaries	as	a	result	of	the new	 market	 risk	 framework	 of	 the	 Basel	 Committee),	 risk	 retention	 and enhanced	disclosure	requirements	for	asset-backed	security	offerings,	reporting requirements	and	restrictions	on	short	selling	and	credit	default	swaps,	additional obligations	and	restrictions	on	the	management	and	marketing	of	funds	in	the EU,	and	revised	market	structure,	conduct	of	business	and	market	abuse	rules.	In addition,	the	European	Commission,	the	European	Securities	Market	Authority, the	European	Banking	Authority	and	the	European	Insurance	and	Occupational Pensions	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.

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	 2012,	 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.

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	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	purchases	and	sales	of our	equity	securities	by	our	executive	officers	and	directors,	as	well	as	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.

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:	gs-investor- relations@gs.com.

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

We	have	included	or	incorporated	by	reference	in	this	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	our	belief	regarding	the effect	of	changes	to	the	capital	and	leverage	rules	applicable	to	bank	holding companies,	the	impact	of	the	Dodd-Frank	Act	on	our	businesses	and	operations, and	various	legal	proceedings	as	set	forth	under	"Legal	Proceedings"	in	Note	27 to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this	Form	10-K,	as well	as	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	this	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	this	Form	10-K.

# 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.	In	2011	and	2012,	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 policies,	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	 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.

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.

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	 policy;	 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	 and	 equities	 activities.	 Because	 nearly	 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	require	us	to	maintain	additional	capital	and increase	our	funding	costs.

In	 our	 exchange-based	 market-making	 activities,	 we	 are	 obligated	 by	 stock exchange	rules	to	maintain	an	orderly	market,	including	by	purchasing	shares	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.

If	financial	markets	decline,	revenues	from	our	variable	annuity	products	are likely	to	decrease.	In	addition,	unanticipated	changes	in	reinvestment	returns, policy	 lapses	 or	 mortality	 rates	 may	 also	 impact	 earnings	 from	 our insurance	activities.

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.

# 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	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.

# 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	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.

# 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	in	2011	and	2012,	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	 in securities,	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,	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.

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"	in	Part	II,	Item	7	of	this	Form	10-K.

# 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 ourselves,	 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	 2012,	 each	 of	 Moody's	 Investors	 Service, 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	2012,	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	in	an	aggregate	amount	of	$1.5	billion	and	$2.5	billion, respectively.

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.

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

As	 we	 have	 expanded	 the	 scope	 of	 our	 businesses	 and	 our	 client	 base,	 we increasingly	 must	 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,	bank	and	insurance	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,	 bank	 and	 insurance	 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.	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	 incorporated	 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	incorporated	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.

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.	See	"Business	—	Regulation"	in	Part	I,	Item	1	of	this	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	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.

# 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	or	issuer,	including	sovereign	issuers, 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	and	counterparties,	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	highly	competitive.

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.

# 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	power generation	facilities,	physical	commodities	and	other	commodities	infrastructure components,	both	within	and	outside	the	United	States.	Recent	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,	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	they	are	not	authorized	or	appropriate	for	a	counterparty,	that	documentation has	 not	 been	 properly	 executed	 or	 that	 executed	 agreements	 may	 not	 be enforceable	against	the	counterparty.

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	ourselves and	adversely	affect	our	profitability	and	increase	our	credit	exposure	to	such platform.

# 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.

As	described	further	in	"Business	—	Regulation	—	Banking	Regulation"	and "Regulation	—	Compensation	Practices"	in	Part	I,	Item	1	of	this	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	FSA,	 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	bank	holding	company, 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	 enforcing	 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	 and	 margin	 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.

U.S.	and	non-U.S.	regulatory	developments,	in	particular	the	Dodd-Frank	Act and	Basel	3,	have	significantly	altered	the	regulatory	framework	within	which we	operate	and	may	adversely	affect	our	competitive	position	and	profitability. Among	the	aspects	of	the	Dodd-Frank	Act	most	likely	to	affect	our	businesses are:	the	prohibition	on	proprietary	trading	and	the	limitation	on	the	sponsorship of,	and	investment	in,	hedge	funds	and	private	equity	funds	by	bank	holding companies	and	other	banking	entities;	increased	capital	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;	the	annual	updating	of	a	resolution	plan;	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	 3	 may 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.

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

# 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.

# 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,	 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,	 developing	 and maintaining	 our	 operational	 systems	 and	 infrastructure	 becomes	 increasingly challenging.	 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. This	 updating	 entails	 significant	 costs	 and	 creates	 risks	 associated	 with implementing	new	systems	and	integrating	them	with	existing	ones.

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	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.

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.

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	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	"Legal	Proceedings" in	Part	I,	Item	3	of	this	Form	10-K	for	a	discussion	of	certain	legal	proceedings in	 which	 we	 are	 involved.	 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.

# 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 power generation interests	 and	 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	 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	 electric	 power	 generation,	 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,	 installation	 of	 pollution control	equipment,	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	 power	 generation	 equipment,	 transmission	 lines, 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.

# 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	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	weather	events	or other	natural	disasters,	could	create	economic	and	financial	disruptions,	could lead	 to	operational	difficulties	(including	 travel	 limitations)	 that	could	 impair our	ability	to	manage	our	businesses.

In	our	life	and	our	property	catastrophe	insurance	activities,	losses	related	to unforeseen	or	catastrophic	events	could	significantly	exceed	the	related	reserves and	reinsurance	proceeds.

# 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	also	have	offices	with approximately	450,000	rentable	square	feet	in	the	New	York	Metropolitan	Area.

We	have	additional	offices	in	the	United	States	and	elsewhere	in	the	Americas, which	 together	 comprise	 approximately	 2.0	 million	 rentable	 square	 feet	 of leased	space.

In	Europe,	the	Middle	East	and	Africa,	we	have	offices	that	total	approximately 1.8	 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	 1.2	 million rentable	square	feet	in	London,	relating	to	various	properties.

In	Asia	 (including	 India),	Australia	 and	 New	 Zealand,	 we	 have	 offices	 with approximately	1.9	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 340,000	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	this	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 this	Form	10-K.	See	Note	27	to	the	consolidated	financial	statements	in	Part	II, Item	8	of	 this	Form	10-K	for	 information	on	certain	 judicial,	regulatory	and legal		proceedings.

# Item	4.				Mine	Safety	Disclosures

Not	applicable.

# 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,	58

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

Mr.	Cohen	has	been	an	Executive	Vice	President	of	Goldman	Sachs	and	our

Global	Head	of	Compliance	since	February	2004.

Mr.	 Cohn	 has	 been	 our	 President	 and	 Chief	 Operating	 Officer (or	 Co-Chief

Operating	Officer)	and	a	director	since	June	2006.

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.

# J.	Michael	Evans,	55

Mr.	Evans	has	been	our	global	head	of	Growth	Markets	since	January	2011	and a	 Vice	 Chairman	 of	 Goldman	 Sachs	 since	 February	 2008.	 From	 2004	 to June	2012,	Mr.	Evans	was	Chairman	of	Goldman	Sachs	Asia	Pacific.

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.

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,	48

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,	58

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,	47

Mr.	 Sherwood	 has	 been	 a	 Vice	 Chairman	 of	 Goldman	 Sachs	 since February	2008	and	co-chief	executive	officer	of	Goldman	Sachs	International since	2005.

# John	S.	Weinberg,	56

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.

# 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	 and	 2012	 is	 set	 forth	 under	 the	 heading	 "Supplemental Financial	Information	—	Common	Stock	Price	Range"	in	Part	II,	Item	8	of	this Form	10-K.	As	of	February	15,	2013,	there	were	13,297	holders	of	record	of	our common	stock.

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 this	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	2012.

|  |  |  | Total	Number	of	Shares | Maximum	Number	of |
| :--- | :--- | :--- | :--- | :--- |
| Period | Total\tNumber\tof\nShares\nPurchased | Average\tPrice\nPaid\tper\nShare | Purchased\tas\tPart\tof\nPublicly\tAnnounced\nPlans\tor\tPrograms^\t1 | Shares\tThat\tMay\tYet\tBe\nPurchased\tUnder\tthe\nPlans\tor\tPrograms^\t1 |
| Month\t#1 |  |  |  |  |
| (October\t1,\t2012\tto\tOctober\t31,\t2012) | 2,698,223 | $121.96 | 2,698,223 | 31,486,968 |
| Month\t#2\n(November\t1,\t2012\tto\tNovember\t30,\t2012) | 6,343,995 | 119.01 | 6,343,995 | 25,142,973 |
| Month\t#3\n(December\t1,\t2012\tto\tDecember\t31,\t2012) | 3,654,122 | 120.66 | 3,654,122 | 21,488,851 |
| Total | 12,696,340 |  | 12,696,340 |  |

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	325	million	shares	by	resolutions	of	our	Board	adopted	on	June	18,	2001,	March	18,	2002,	November	20,	2002,	January	30,	2004,	January	25,	2005, September	16,	2005,	September	11,	2006,	December	17,	2007	and	July	18,	2011.	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	(i.e.,	comparisons of	our	desired	level	and	composition	of	capital	to	our	actual	level	and	composition	of	capital),	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.

# Item	6.	Selected	Financial	Data

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

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

|  |  | Page	No. |
| :--- | :--- | :--- |
| Introduction |  | 42 |
| Executive\tOverview |  | 43 |
| Business\tEnvironment |  | 45 |
| Critical\tAccounting\tPolicies |  | 47 |
| Use\tof\tEstimates |  | 51 |
| Results\tof\tOperations |  | 52 |
| Regulatory\tDevelopments |  | 66 |
| Balance\tSheet\tand\tFunding\tSources |  | 69 |
| Equity\tCapital |  | 76 |
| Off-Balance-Sheet\tArrangements\tand\tContractual\tObligations |  | 82 |
| Overview\tand\tStructure\tof\tRisk\tManagement |  | 84 |
| Liquidity\tRisk\tManagement |  | 89 |
| Market\tRisk\tManagement |  | 96 |
| Credit\tRisk\tManagement |  | 102 |
| Operational\tRisk\tManagement |  | 109 |
| Recent\tAccounting\tDevelopments |  | 111 |
| Certain\tRisk\tFactors\tThat\tMay\tAffect\tOur\tBusinesses |  | 112 |
|  | Goldman\tSachs\t2012\tForm\t10-K | 41 |

# Management's	Discussion	and	Analysis

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	"this	Form	10-K"	are	to	our	Annual	Report	on	Form	10-K	for	the year	ended	December	31,	2012.	All	references	to	2012,	2011	and	2010	refer	to our	 years	 ended,	 or	 the	 dates,	 as	 the	 context	 requires,	 December	 31,	 2012, December	31,	2011	and	December	31,	2010,	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 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	this	Form	10-K	and	"Cautionary Statement	Pursuant	to	the	U.S.	Private	Securities	Litigation	Reform	Act	of	1995" in	Part	I,	Item	1	of	this	Form	10-K.

# Executive	Overview

Book	value	per	common	share	 increased	approximately	11%	 to	$144.67	and tangible	 book	 value	 per	 common	 share	^4 increased	 approximately 12% to $134.06	compared	with	the	end	of	2011.	During	the	year,	the	firm	repurchased 42.0	million	shares	of	its	common	stock	for	a	total	cost	of	$4.64	billion.	Our Tier	1	capital	ratio	under	Basel	1	was	16.7%	and	our	Tier	1	common	ratio	under Basel	1	 5	was	14.5%	as	of	December	2012.

The	 firm	 generated	 net	 revenues	 of	 $34.16	 billion	 for	 2012.	 These	 results reflected	significantly	higher	net	revenues	in	Investing	&	Lending,	as	well	as higher	 net	 revenues	 in	 Institutional	 Client	 Services,	 Investment	 Banking	 and Investment	Management	compared	with	2011.

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

Net	revenues	in	Investment	Banking	increased	compared	with	2011,	reflecting significantly	higher	net	revenues	in	our	Underwriting	business,	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.	 Net	 revenues	 in	 Financial Advisory	were	essentially	unchanged	compared	with	2011.

Net	 revenues	 in	 Institutional	 Client	 Services	 increased	 compared	 with	 2011, reflecting	 higher	 net	 revenues	 in	 Fixed	 Income,	 Currency	 and	 Commodities Client	Execution.

The	 increase	 in	 Fixed	 Income,	 Currency	 and	 Commodities	 Client	 Execution compared	with	2011	reflected	strong	net	revenues	 in	mortgages,	which	were significantly	 higher	 compared	 with	 2011.	 In	 addition,	 net	 revenues	 in	 credit products	and	interest	rate	products	were	solid	and	higher	compared	with	2011. These	 increases	 were	 partially	 offset	 by	 significantly	 lower	 net	 revenues	 in commodities	 and	 slightly	 lower	 net	 revenues	 in	 currencies.	 Although	 broad market	 concerns	 persisted	 during	 2012,	 Fixed	 Income,	 Currency	 and Commodities	Client	Execution	operated	in	a	generally	improved	environment characterized	 by	 tighter	 credit	 spreads	 and	 less	 challenging	 market-making conditions	compared	with	2011.

1.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	Inc.	and	certain	of	its	subsidiaries	(collectively, 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.	See	"Results	of	Operations	—	Financial	Overview"	below	for	further	information	about	our	calculation	of	diluted	earnings	per	common	share	and	ROE excluding	the	impact	of	this	dividend.

2.Excluding	the	impact	of	the	$465	million	related	to	the	U.K.	bank	payroll	tax,	the	$550	million	related	to	the	SEC	settlement	and	the	$305	million	impairment	of	our	New	York	Stock	Exchange	(NYSE) Designated	Market	Maker	(DMM)	rights,	diluted	earnings	per	common	share	were	$15.22	and	ROE	was	13.1%	for	2010.	We	believe	that	presenting	our	results	for	2010	excluding	the	impact	of	these items	is	meaningful,	as	it	increases	the	comparability	of	period-to-period	results.	Diluted	earnings	per	common	share	and	ROE	excluding	these	items	are	non-GAAP	measures	and	may	not	be comparable	to	similar	non-GAAP	measures	used	by	other	companies.	See	"Results	of	Operations	—	Financial	Overview"	below	for	further	information	about	our	calculation	of	diluted	earnings	per common	share	and	ROE	excluding	the	impact	of	these	items.

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

4.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.

5.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.

Net	revenues	in	Equities	were	essentially	unchanged	compared	with	2011.	Net revenues	in	securities	services	were	significantly	higher	compared	with	2011, reflecting	a	gain	of	approximately	$500	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	lower	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.

Net	revenues	in	Investing	&	Lending	were	$5.89	billion	and	$2.14	billion	for 2012	and	2011,	respectively.	During	2012,	Investing	&	Lending	net	revenues were	 positively	 impacted	 by	 tighter	 credit	 spreads	 and	 an	 increase	 in	 global equity	 prices.	 Results	 for	 2012	 included	 a	 gain	 of	 $408	 million	 from	 our investment	in	the	ordinary	shares	of	Industrial	and	Commercial	Bank	of	China Limited	(ICBC),	net	gains	of	$2.39	billion	from	other	investments	in	equities, primarily	in	private	equities,	net	gains	and	net	interest	income	of	$1.85	billion from	 debt	 securities	 and	 loans,	 and	 other	 net	 revenues	 of $1.24 billion, principally	related	to	our	consolidated	investment	entities.

Results	for	2011	included	a	 loss	of	$517	million	from	our	 investment	 in	 the ordinary	shares	of	ICBC	and	net	gains	of	$1.12	billion	from	other	investments	in equities,	 primarily	 in	 private	 equities,	 partially	 offset	 by	 losses	 from	 public equities.	In	addition,	Investing	&	Lending	included	net	revenues	of	$96	million from	debt	securities	and	loans.	This	amount	includes	approximately	$1	billion	of unrealized	losses	related	to	relationship	lending	activities,	including	the	effect	of hedges,	offset	by	net	interest	income	and	net	gains	from	other	debt	securities	and loans.	 Results	 for	 2011	 also	 included	 other	 net	 revenues	 of	 $1.44	 billion, principally	related	to	our	consolidated	investment	entities.

Net	revenues	in	Investment	Management	increased	compared	with	2011,	due	to significantly	higher	incentive	fees,	partially	offset	by	lower	transaction	revenues and	slightly	lower	management	and	other	fees.	During	the	year,	assets	under supervision	^1	 increased	$70	billion	to	$965	billion.	Assets	under	management increased	 $26	 billion	 to	 $854	 billion,	 reflecting	 net	 market	 appreciation	 of $44	billion,	primarily	in	fixed	income	and	equity	assets,	partially	offset	by	net outflows	 of	 $18	 billion.	 Net	 outflows	 in	 assets	 under	 management	 included outflows	 in	equity,	alternative	 investment	and	money	market	assets,	partially offset	 by	 inflows	 in	 fixed	 income	 assets 2.	 Other client	 assets	 increased $44	billion	to	$111	billion,	primarily	due	to	net	inflows	 2,	principally	in	client assets	 invested	 with	 third-party	 managers	 and	 assets	 related	 to	 advisory relationships.

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	this	Form	10-K.

1.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.	Other	client	assets	include	client	assets	invested	with	third-party	managers,	private	bank	deposits	and	assets	related	to	advisory	relationships	where	we	earn	a	fee	for	advisory	and	other services,	but	do	not	have	discretion	over	the	assets.

2.Includes	$34	billion	of	fixed	income	asset	inflows	in	connection	with	our	acquisition	of	Dwight	Asset	Management	Company	LLC	(Dwight	Asset	Management),	including	$17	billion	in	assets	under management	and	$17	billion	in	other	client	assets,	and	$5	billion	of	fixed	income	and	equity	asset	outflows	in	connection	with	our	liquidation	of	Goldman	Sachs	Asset	Management	Korea	Co.,	Ltd. (Goldman	Sachs	Asset	Management	Korea,	formerly	known	as	Macquarie	—	IMM	Investment	Management),	all	related	to	assets	under	management,	for	the	year	ended	December	2012.

# Business	Environment

Global	economic	conditions	generally	weakened	in	2012,	as	real	gross	domestic product	(GDP)	growth	slowed	in	most	major	economies.	Market	sentiment	was affected	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.	 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.	 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	this	Form	10-K.

# Global

During	 2012,	 real	 GDP	 growth	 declined	 in	 most	 advanced	 economies	 and emerging	markets.	In	advanced	economies,	the	slowdown	primarily	reflected	a decline	 in	consumer	expenditure	and	fixed	 investment	growth,	particularly	 in Europe,	as	well	as	a	deceleration	in	international	trade	compared	with	2011.	In emerging	 markets,	 growth	 in	 domestic	 demand	 weakened,	 although	 the contribution	from	government	spending	was	generally	positive.	Unemployment levels	declined	slightly	in	some	economies	compared	with	2011,	but	increased	in others,	particularly	in	the	Euro	area.	The	rate	of	unemployment	continued	to

remain	elevated	in	many	advanced	economies.	During	2012,	the	U.S.	Federal Reserve,	 the	 Bank	 of	 England	 and	 the	 Bank	 of	 Japan	 left	 interest	 rates unchanged,	 while	 the	 European	 Central	 Bank	 reduced	 its	 interest	 rate.	 In addition,	the	People's	Bank	of	China	lowered	its	one-year	benchmark	lending rate	during	the	year.	The	price	of	crude	oil	generally	declined	during	2012.	The U.S.	 dollar	 weakened	 against	 both	 the	 Euro	 and	 the	 British	 pound,	 while	 it strengthened	against	the	Japanese	yen.

# United	States

In	the	United	States,	real	GDP	increased	by	2.2%	in	2012,	compared	with	an increase	of	1.8%	in	2011.	Growth	was	supported	by	an	acceleration	in	residential investment	and	a	smaller	decrease	in	state	and	local	government	spending,	which were	 partially	 offset	 by	 a	 slowdown	 in	 consumer	 spending	 and	 business investment.	 Both	 house	 prices	 and	 housing	 starts	 increased.	 Industrial production	expanded	in	2012,	despite	the	negative	impact	of	Hurricane	Sandy during	 the	fourth	quarter.	Business	and	consumer	confidence	declined	during parts	of	the	year,	primarily	reflecting	increased	global	economic	concerns	and heightened	uncertainties,	but	ended	the	year	higher	compared	with	the	end	of 2011.	Measures	of	core	inflation	on	average	were	higher	compared	with	2011. The	unemployment	rate	declined	during	2012,	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	extended	its	program	to	lengthen	the	maturity	of	the U.S.	Treasury	debt	it	holds.	In	addition,	the	U.S.	Federal	Reserve	announced	an open-ended	program	to	purchase	U.S.	Treasury	securities	and	mortgage-backed securities,	 as	 well	 as	 a	 commitment	 to	 keep	 short-term	 interest	 rates exceptionally	low	until	the	unemployment	rate	falls	to	6.5%	or	inflation	rises materially.	The	yield	on	the	10-year	U.S.	Treasury	note	fell	by	11	basis	points during	2012	to	1.78%.	In	equity	markets,	the	NASDAQ	Composite	Index,	the S&P	500	Index	and	the	Dow	Jones	Industrial	Average	increased	by	16%,	13% and	7%,	respectively,	compared	with	the	end	of	2011.

# Europe

In	the	Euro	area,	real	GDP	declined	by	0.5%	in	2012,	compared	with	an	increase of	1.5%	in	2011.	The	contraction	was	principally	due	to	a	sharp	fall	in	domestic demand,	 primarily	 reflecting	 downturns	 in	 consumer	 spending	 and	 fixed investment.	Business	and	consumer	confidence	declined	and	measures	of	core inflation	increased	slightly	during	the	year.	The	unemployment	rate	increased substantially,	 particularly	 in	 Spain	 and	 Italy.	 These	 negative	 developments reflected	the	impact	that	the	sovereign	debt	crisis	had	on	the	region's	economic growth,	particularly	during	the	first	half	of	the	year,	as	concerns	about	Greece's debt	situation	and	the	fiscal	outlook	in	Spain	and	Italy	intensified.	To	address these	 issues,	 the	European	Central	Bank	 injected	 liquidity	 in	 the	Eurosystem through	 its	 longer-term	 refinancing	 operations	 (LTROs),	 decreased	 its	 main refinancing	 operations	 rate	 by	 25	 basis	 points	 to	 0.75%,	 and	 announced	 a program	 to	 make	 outright	 purchases	 of	 sovereign	 bonds	 in	 the	 secondary markets.	The	 Euro	 appreciated	 by	 2%	 against	 the	 U.S.	 dollar.	 In	 the	 United Kingdom,	real	GDP	increased	by	0.2%	in	2012	compared	with	an	increase	of 0.9%	in	2011.	The	Bank	of	England	maintained	its	official	bank	rate	at	0.50% and	 increased	 the	 size	 of	 its	 asset	 purchase	 program.	 The	 British	 pound appreciated	by	4%	against	the	U.S.	dollar.	Long-term	government	bond	yields generally	declined	during	the	year.	In	equity	markets,	the	DAX	Index,	the	CAC 40	Index,	the	Euro	Stoxx	50	Index,	and	the	FTSE	100	index	increased	by	29%, 15%,	14%	and	6%,	respectively,	compared	with	the	end	of	2011.

In	Japan,	real	GDP	increased	by	1.9%	in	2012,	compared	with	a	decline	of	0.6% in	2011.	Fixed	investment	growth	increased,	particularly	from	the	public	sector, helped	by	reconstruction	efforts	following	the	earthquake	and	tsunami	in	2011. However,	the	trade	balance	continued	to	deteriorate	during	2012.	Measures	of inflation	remained	negative	or	close	to	zero	during	the	year.	The	Bank	of	Japan maintained	its	target	overnight	call	rate	at	a	range	of	zero	to	0.10%	during	the year,	increased	the	size	of	its	asset	purchase	program,	and	announced	measures to	facilitate

outright	purchases	of	government	and	corporate	bonds.	The	yield	on	10-year Japanese	government	bonds	fell	by	20	basis	points	during	the	year	to	0.79%.	The Japanese	yen	depreciated	by	13%	against	the	U.S.	dollar	and,	in	equity	markets, the	Nikkei	225	Index	increased	by	23%.	In	China,	real	GDP	increased	by	7.8% in	 2012,	 compared	 with	 an	 increase	 of 9.3% in	 2011.	 Growth	 slowed	 as household	 consumption	 and	 fixed	 investment	 growth	 moderated.	 In	 addition, growth	in	industrial	production	declined.	Measures	of	inflation	declined	during the	year.	The	People's	Bank	of	China	lowered	its	one-year	benchmark	lending rate	by	56	basis	points	to	6.00%	and	reduced	the	reserve	requirement	ratio	by 100	basis	points	during	the	year.	The	Chinese	yuan	appreciated	slightly	against the	U.S.	dollar	and,	in	equity	markets,	the	Shanghai	Composite	Index	increased by	3%.	In	India,	real	GDP	increased	by	an	estimated	5.4%	in	2012,	compared with	an	increase	of	7.5%	in	2011.	Growth	decelerated,	primarily	reflecting	a slowdown	in	domestic	demand	growth	and	a	deterioration	in	the	trade	balance. The	 rate	 of	 wholesale	 inflation	 declined	 compared	 with	 2011,	 but	 remained elevated.	The	Indian	rupee	depreciated	by	4%	against	the	U.S.	dollar	and,	in equity	markets,	the	BSE	Sensex	Index	increased	26%.	Equity	markets	in	Hong Kong	and	South	Korea	were	higher,	as	the	Hang	Seng	Index	increased	23%	and the	KOSPI	Composite	Index	increased	9%,	respectively,	compared	with	the	end of	2011.

# Other	Markets

In	Brazil,	real	GDP	increased	by	an	estimated	1.0%	in	2012,	compared	with	an increase	of	2.7%	in	2011.	Growth	decelerated,	primarily	reflecting	a	decline	in private	consumption	growth	and	a	downturn	in	fixed	investment.	The	Brazilian real	 depreciated	 by	 9%	 against	 the	 U.S.	 dollar	 and,	 in	 equity	 markets,	 the Bovespa	Index	increased	by	7%	compared	with	the	end	of	2011.	In	Russia,	real GDP	increased	by	3.4%	in	2012,	compared	with	4.3%	in	2011.	Growth	slowed, primarily	reflecting	a	decline	in	domestic	demand	growth,	particularly	during	the second	half	of	the	year.	The	Russian	ruble	appreciated	by	5%	against	the	U.S. dollar	and,	in	equity	markets,	the	MICEX	Index	increased	by	5%	compared	with the	end	of	2011.

# 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.	 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	2012	and	December	2011,	level	3	assets	represented	5.0%	and	5.2%, respectively,	 of	 the	 firm's	 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 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	 (independent	 control	 and	 support	 functions).	 This independent	 price	 verification	 is	 critical	 to	 ensuring	 that	 our	 financial instruments	are	properly	valued.

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	 disputes	 on	 derivatives	 are examined and investigated	to	determine	the	impact,	if	any,	on	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	this	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.

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.

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

|  | As	of	December	2012 |  | As	of	December	2011 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Total\tat | Level\t3 | Total\tat | Level\t3 |
| in\tmillions | Fair\tValue | Total | Fair\tValue | Total |
| Commercial\tpaper,\tcertificates\tof\tdeposit,\ttime\tdeposits |  |  |  |  |
| and\tother\tmoney\tmarket\tinstruments | $\t\t\t\t6,057 | \t$\t\t\t\t\t\t\t— | \t $\t\t13,440 | \t$\t\t\t\t\t\t\t— |
| U.S.\tgovernment\tand\tfederal\tagency\tobligations | 93,241 | — | 87,040 | — |
| Non-U.S.\tgovernment\tand\tagency\tobligations | 62,250 | 26 | 49,205 | 148 |
| Mortgage\tand\tother\tasset-backed\tloans\tand\tsecurities:\nLoans\tand\tsecurities\tbacked\tby\tcommercial\treal\testate | 9,805 | 3,389 | 6,699 | 3,346 |
| Loans\tand\tsecurities\tbacked\tby\tresidential\treal\testate | 8,216 | 1,619 | 7,592 | 1,709 |
| Bank\tloans\tand\tbridge\tloans | 22,407 | 11,235 | 19,745 | 11,285 |
| Corporate\tdebt\tsecurities | 20,981 | 2,821 | 22,131 | 2,480 |
| State\tand\tmunicipal\tobligations | 2,477 | 619 | 3,089 | 599 |
| Other\tdebt\tobligations | 2,251 | 1,185 | 4,362 | 1,451 |
| Equities\tand\tconvertible\tdebentures | 96,454 | 14,855 | 65,113 | 13,667 |
| Commodities | 11,696 | — | 5,762 | — |
| Total\tcash\tinstruments | 335,835 | 35,749 | 284,178 | 34,685 |
| Derivatives | 71,176 | 9,920 | 80,028 | 11,900 |
| Financial\tinstruments\towned,\tat\tfair\tvalue | 407,011 | 45,669 | 364,206 | 46,585 |
| Securities\tsegregated\tfor\tregulatory\tand\tother\tpurposes | 30,484 | — | 42,014 | — |
| Securities\tpurchased\tunder\tagreements\tto\tresell | 141,331 | 278 | 187,789 | 557 |
| Securities\tborrowed | 38,395 | — | 47,621 | — |
| Receivables\tfrom\tcustomers\tand\tcounterparties | 7,866 | 641 | 9,682 | 795 |
| Other\tassets\t^1 | 13,426 | 507 | — | — |
| Total | $638,513 | \t$47,095 | \t $651,312 | \t$47,937 |

1.Consists	of	assets	classified	as	held	for	sale	related	to	our	reinsurance	business,	primarily	consisting	of	securities	accounted	for	as	available-for-sale	and	insurance	separate	account	assets,	which were	previously	included	in	"Financial	instruments	owned,	at	fair	value"	and	"Securities	segregated	for	regulatory	and	other	purposes,"	respectively.	See	Note	12	to	the	consolidated	financial statements	in	Part	II,	Item	8	of	this	Form	10-K	for	further	information	about	assets	held	for	sale.

# Goodwill	and	Identifiable	Intangible	Assets

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	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	impairment test	is	performed	by	comparing	the	estimated	fair	value	of	each	reporting	unit with	its	estimated	net	book	value.

Estimating	the	fair	value	of	our	reporting	units	requires	management	to	make judgments.	 Critical	 inputs	 to	 the	 fair	 value	 estimates	 include	 (i)	 projected earnings,	(ii)	estimated	long-term	growth	rates	and	(iii)	cost	of	equity.	The	net book	value	of	each	reporting	unit	reflects	an	allocation	of	total	shareholders' equity	and	represents	the	estimated	amount	of	shareholders'	equity	required	to support	the	activities	of	the	reporting	unit	under	guidelines	issued	by	the	Basel Committee	on	Banking	Supervision	(Basel	Committee)	in	December	2010.

Our	market	capitalization	was	below	book	value	during	2012.	Accordingly,	we performed	a	quantitative	impairment	test	during	the	fourth	quarter	of	2012	and determined	 that	 goodwill	 was	 not	 impaired.	 The	 estimated	 fair	 value	 of	 our reporting	units	in	which	we	hold	substantially	all	of	our	goodwill	significantly exceeded	 the	 estimated	 carrying	 values.	 We	 believe	 that	 it	 is	 appropriate	 to consider	market	capitalization,	among	other	factors,	as	an	indicator	of	fair	value over	a	reasonable	period	of	time.

If	the	more	recent	improvement	in	market	conditions	does	not	continue,	and	we return	 to	 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	this Form	10-K	for	further	information	about	our	goodwill.

Identifiable Intangible	 Assets.	 We amortize	 our	 identifiable	 intangible assets	 (i)	 over	 their	 estimated	 lives,	 (ii)	 based	 on	 economic	 usage	 or	 (iii)	 in proportion	 to	 estimated	 gross	 profits	 or	 premium	 revenues.	 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.

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 sum	of	the	estimated	undiscounted	cash	flows	relating	to	the	asset	or	asset	group is	less	than	the	corresponding	carrying	value.	See	Note	13	to	the	consolidated financial	statements	in	Part	II,	Item	8	of	this	Form	10-K	for	the	carrying	value and	estimated	remaining	lives	of	our	identifiable	intangible	assets	by	major	asset class	and	impairments	of	our	identifiable	intangible	assets.

A	prolonged	period	of	market	weakness	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	(i)	decreases	in	revenues	from	commodity-related	customer	contracts and	 relationships,	 (ii)	 decreases	 in	 cash	 receipts	 from	 television	 broadcast royalties,	(iii)	an	adverse	action	or	assessment	by	a	regulator	or	(iv)	adverse actual	 experience	 on	 the	 contracts	 in	 our	 variable	 annuity	 and	 life	 insurance business.	Management	judgment	is	required	to	evaluate	whether	indications	of potential	 impairment	have	occurred,	and	 to	 test	 intangibles	for	 impairment	 if required.

# Use	of	Estimates

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	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	this	Form	10-K	for	further	information	about	accounting	for	income taxes.

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.	See	Notes	18	and	27	to	the	consolidated	financial	statements	in Part	II,	Item	8	of	this	Form	10-K	for	information	on	certain	judicial,	regulatory and	legal	proceedings.

# Results	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	this	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 | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| $\tin\tmillions,\texcept\tper\tshare\tamounts | 2012 | 2011 | 2010 |
| Net\trevenues | \t$34,163 | \t$28,811 | \t$39,161 |
| Pre-tax\tearnings | 11,207 | 6,169 | 12,892 |
| Net\tearnings | 7,475 | 4,442 | 8,354 |
| Net\tearnings\tapplicable\tto\tcommon\tshareholders | 7,292 | 2,510 | 7,713 |
| Diluted\tearnings\tper\tcommon\tshare | 14.13 | 4.51^\t2 | 13.18^\t3 |
| Return\ton\taverage\tcommon\tshareholders'\tequity^\t1 | 10.7% | 3.7%^\t2 | 11.5%^\t3 |

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<br>Year	Ended	December | Average	for	the<br>Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Total\tshareholders'\tequity | \t$72,530 | \t$72,708 | \t$74,257 |
| Preferred\tstock | (4,392) | (3,990) | (6,957) |
| Common\tshareholders'\tequity | \t$68,138 | \t$68,718 | \t$67,300 |

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	Series	G	Preferred	Stock,	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.

|  | Year	Ended |
| :--- | :--- |
| in\tmillions,\texcept\tper\tshare\tamount | December\t2011 |
| Net\tearnings\tapplicable\tto\tcommon\tshareholders | $\t\t2,510 |
| Impact\tof\tthe\tSeries\tG\tPreferred\tStock\tdividend | 1,643 |
| Net\tearnings\tapplicable\tto\tcommon\tshareholders,\texcluding\tthe\timpact\tof\tthe\tSeries\tG\tPreferred\tStock\tdividend | 4,153 |
| Divided\tby:\taverage\tdiluted\tcommon\tshares\toutstanding | 556.9 |
| Diluted\tearnings\tper\tcommon\tshare,\texcluding\tthe\timpact\tof\tthe\tSeries\tG\tPreferred\tStock\tdividend | $\t\t\t\t7.46 |

|  | Average	for	the |
| :--- | :--- |
|  | Year\tEnded |
| in\tmillions | December\t2011 |
| Total\tshareholders'\tequity | $72,708 |
| Preferred\tstock | (3,990) |
| Common\tshareholders'\tequity | 68,718 |
| Impact\tof\tthe\tSeries\tG\tPreferred\tStock\tdividend | 1,264 |
| Common\tshareholders'\tequity,\texcluding\tthe\timpact\tof\tthe\tSeries\tG\tPreferred\tStock\tdividend | $69,982 |

3. Excluding	the	impact	of	the	$465	million	related	to	the	U.K.	bank	payroll	tax,	the	$550	million	related	to	the	SEC	settlement	and	the	$305	million	impairment	of	our	NYSE	DMM	rights,	diluted earnings	per	common	share	were	$15.22	and	ROE	was	13.1%	for	2010.	We	believe	that	presenting	our	results	for	2010	excluding	the	impact	of	these	items	is	meaningful,	as	it	increases	the comparability	 of	 period-to-period	 results.	 Diluted	 earnings	 per	 common	 share	 and	 ROE	 excluding	 these	 items	 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	these	items.

| in	millions,	except	per	share	amount | Year	Ended<br>December	2010 |
| :--- | :--- |
| Net\tearnings\tapplicable\tto\tcommon\tshareholders | $\t\t7,713 |
| Impact\tof\tthe\tU.K.\tbank\tpayroll\ttax | 465 |
| Pre-tax\timpact\tof\tthe\tSEC\tsettlement | 550 |
| Tax\timpact\tof\tthe\tSEC\tsettlement | (6) |
| Pre-tax\timpact\tof\tthe\tNYSE\tDMM\trights\timpairment | 305 |
| Tax\timpact\tof\tthe\tNYSE\tDMM\trights\timpairment | (118) |
| the\tSEC\tsettlement\tand\tthe\tNYSE\tDMM\trights\timpairment | 8,909 |
| Divided\tby:\taverage\tdiluted\tcommon\tshares\toutstanding | 585.3 |
| and\tthe\tNYSE\tDMM\trights\timpairment | $\t\t15.22 |

| in	millions | Average	for	the<br>Year	Ended<br>December	2010 |
| :--- | :--- |
| Total\tshareholders'\tequity | $74,257 |
| Preferred\tstock | (6,957) |
| Common\tshareholders'\tequity | 67,300 |
| Impact\tof\tthe\tU.K.\tbank\tpayroll\ttax | 359 |
| Impact\tof\tthe\tSEC\tsettlement | 293 |
| Impact\tof\tthe\tNYSE\tDMM\trights\timpairment | 14 |
| and\tthe\tNYSE\tDMM\trights\timpairment | $67,966 |
| Goldman\tSachs\t2012\tForm\t10-K | 53 |

# Net	Revenues

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.

2011	versus	2010.	Net	revenues	on	the	consolidated	statements	of	earnings were	 $28.81	 billion	 for	 2011,	 26%	 lower	 than	 2010,	 reflecting	 significantly lower	other	principal	transactions	revenues	and	market-making	revenues,	as	well as	lower	investment	banking	revenues	and	net	interest	income.	These	decreases were	 partially	 offset	 by	 higher	 commissions	 and	 fees	 compared	 with	 2010. Investment	management	revenues	were	 essentially	 unchanged	 compared	 with 2010.

# Non-interest	Revenues

During	2012,	investment	banking	revenues	reflected	an	operating	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.	If	macroeconomic	concerns	continue and	result	in	lower	levels	of	client	activity,	investment	banking	revenues	would likely	be	negatively	impacted.

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	 our	 underwriting	 business,	 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.

2011 versus 2010.	Investment	 banking	 revenues	 on	 the	 consolidated statements	 of	 earnings	 were	 $4.36	 billion	 for	 2011,	 9%	 lower	 than	 2010, primarily	reflecting	lower	revenues	in	our	underwriting	business.	Revenues	in equity	 underwriting	 were	 significantly	 lower	 than	 2010,	 principally	 due	 to	 a decline	in	industry-wide	activity.	Revenues	in	debt	underwriting	were	essentially unchanged	 compared	 with	 2010.	 Revenues	 in	 financial	 advisory	 decreased slightly	compared	with	2010.

During	 2012,	 investment	 management	 revenues	 reflected	 an	 operating environment	 generally	 characterized	 by	 improved	 asset	 prices,	 resulting	 in appreciation	 in	 the	 value	 of	 client	 assets.	 However,	 the	 mix	 of	 assets	 under supervision	has	shifted	slightly	from	asset	classes	that	typically	generate	higher fees	to	asset	classes	that	typically	generate	lower	fees	compared	with	2011.	In the	future,	if	asset	prices	were	to	decline,	or	investors	continue	to	favor	asset classes	that	typically	generate	lower	fees	or	investors	continue	to	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.

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

2011	 versus	 2010.	Investment	 management	 revenues	 on	 the	 consolidated statements	 of	 earnings	 were $4.69 billion	 for	 2011,	 essentially	 unchanged compared	 with	 2010,	 primarily	 due	 to	 higher	 management	 and	 other	 fees, reflecting	favorable	changes	in	the	mix	of	assets	under	management,	offset	by lower	incentive	fees.

# Commissions	and	fees

Although	 global	 equity	 prices	 increased	 during	 2012,	 commissions	 and	 fees reflected	 an	 operating	 environment	 characterized	 by	 lower	 market	 volumes primarily	due	to	lower	volatility	levels,	concerns	about	the	outlook	for	the	global economy	 and	 continued	 political	 uncertainty.	 If	 macroeconomic	 concerns continue	and	result	in	lower	market	volumes,	commissions	and	fees	would	likely continue	to	be	negatively	impacted.

2012	versus	2011.	Commissions	and	fees	on	the	consolidated	statements	of earnings	were	$3.16	billion	for	2012,	16%	lower	than	2011,	reflecting	lower market	volumes.

2011	versus	2010.	Commissions	and	fees	on	the	consolidated	statements	of earnings	were	$3.77	billion	for	2011,	6%	higher	than	2010,	primarily	reflecting higher	market	volumes,	particularly	during	the	third	quarter	of	2011.

# Market	making

During	 2012,	 market-making	 revenues	 reflected	 an	 operating	 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.	If these	concerns	and	uncertainties	continue	over	 the	 long	 term,	market-making revenues	would	likely	be	negatively	impacted.

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	approximately	$500	million	on	the	sale	of	our hedge	fund	administration	business.

2011	versus	2010.	Market-making	revenues	on	the	consolidated	statements	of earnings	were	$9.29	billion	for	2011,	32%	lower	than	2010.	Although	activity levels	during	2011	were	generally	consistent	with	2010	levels,	and	results	were solid	during	the	first	quarter	of	2011,	the	environment	during	the	remainder	of 2011	was	characterized	by	broad	market	concerns	and	uncertainty,	resulting	in volatile	 markets	 and	 significantly	 wider	 credit	 spreads,	 which	 contributed	 to difficult	market-making	conditions	and	led	to	reductions	in	risk	by	us	and	our clients.	 As	 a	 result	 of	 these	 conditions,	 revenues	 across	 most	 of	 our	 major market-making	activities	were	lower	during	2011	compared	with	2010.

# Other	principal	transactions

During	 2012,	 other	 principal	 transactions	 revenues	 reflected	 an	 operating environment	characterized	by	tighter	credit	spreads	and	an	increase	 in	global equity	prices.	However,	concerns	about	the	outlook	for	the	global	economy	and uncertainty	over	financial	regulatory	reform	persisted.	If	equity	markets	decline or	credit	spreads	widen,	other	principal	transactions	revenues	would	likely	be negatively	impacted.

2012	versus	2011.	Other	principal	transactions	revenues	on	the	consolidated statements	of	earnings	were	$5.87	billion	and	$1.51	billion	for	2012	and	2011, respectively.	 Results	 for	 2012	 included	 a	 gain	 from	 our	 investment	 in	 the ordinary	shares	of	ICBC,	net	gains	from	other	investments	in	equities,	primarily in	private	equities,	net	gains	from	debt	securities	and	loans,	and	revenues	related to	our	consolidated	investment	entities.

2011	versus	2010.	Other	principal	transactions	revenues	on	the	consolidated statements	of	earnings	were	$1.51	billion	and	$6.93	billion	for	2011	and	2010, respectively.	 Results	 for	 2011	 included	 a	 loss	 from	 our	 investment	 in	 the ordinary	 shares	 of	 ICBC	 and	 net	 gains	 from	 other	 investments	 in	 equities, primarily	in	private	equities,	partially	offset	by	losses	from	public	equities.	In addition,	revenues	in	other	principal	transactions	included	net	losses	from	debt securities	and	loans,	primarily	reflecting	approximately	$1	billion	of	unrealized losses	related	to	relationship	lending	activities,	including	the	effect	of	hedges, partially	offset	by	net	gains	from	other	debt	securities	and	 loans.	Results	for 2011	 also	 included	 revenues	 related	 to	 our	 consolidated	 investment	 entities. Results	for	2010	included	a	gain	from	our	investment	in	the	ordinary	shares	of ICBC,	 net	 gains	 from	 other	 investments	 in	 equities,	 net	 gains	 from	 debt securities	and	loans,	and	revenues	related	to	consolidated	investment	entities.

# Net	Interest	Income

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.

2011	 versus	 2010.	Net interest income	 on the	 consolidated	 statements	 of earnings	 was $5.19 billion for 2011, 6% lower than 2010.	 The decrease compared	with	2010	was	primarily	due	to	higher	interest	expense	related	to	our long-term borrowings and higher dividend expense related to financial instruments	sold,	but	not	yet	purchased,	partially	offset	by	an	increase	in	interest income	from	higher	yielding	collateralized	agreements.

# 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.

In	 the	 context	 of	 more	 difficult	 economic	 and	 financial	 conditions,	 the	 firm launched	an	initiative	during	the	second	quarter	of	2011	to	identify	areas	where we	can	operate	more	efficiently	and	reduce	our	operating	expenses.	During	2012 and	 2011,	 we	 announced	 targeted	 annual	 run	 rate	 compensation	 and	 non- compensation	reductions	of	approximately	$1.9	billion	in	aggregate.

The	table	below	presents	our	operating	expenses	and	total	staff.

|  |  | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| $\tin\tmillions | 2012 | 2011 | 2010 |
| Compensation\tand\tbenefits | \t$12,944 | \t$12,223 | \t$15,376 |
| U.K.\tbank\tpayroll\ttax | — | — | 465 |
| Brokerage,\tclearing,\texchange\tand\tdistribution\tfees | 2,208 | 2,463 | 2,281 |
| Market\tdevelopment | 509 | 640 | 530 |
| Communications\tand\ttechnology | 782 | 828 | 758 |
| Depreciation\tand\tamortization | 1,738 | 1,865 | 1,889 |
| Occupancy | 875 | 1,030 | 1,086 |
| Professional\tfees | 867 | 992 | 927 |
| Insurance\treserves^\t1 | 598 | 529 | 398 |
| Other\texpenses | 2,435 | 2,072 | 2,559 |
| Total\tnon-compensation\texpenses | 10,012 | 10,419 | 10,428 |
| Total\toperating\texpenses | \t$22,956 | \t$22,642 | \t$26,269 |
| Total\tstaff\tat\tperiod-end^\t2 | 32,400 | 33,300 | 35,700 |

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

2.Includes	employees,	consultants	and	temporary	staff.

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	the	impact	of	expense	reduction	initiatives,	lower brokerage,	clearing,	exchange	and	distribution	fees,	lower	occupancy	expenses and	lower	impairment	charges.	These	decreases	were	partially	offset	by	higher other	expenses	and	increased	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	Board	of	Governors	of the	Federal	Reserve	System	(Federal	Reserve	Board)	regarding	the	independent foreclosure	review).	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.	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.

2011	 versus	 2010.	Operating	 expenses	 on	 the	 consolidated	 statements	 of earnings	were	$22.64	billion	for	2011,	14%	lower	than	2010.	Compensation	and benefits	expenses	on	the	consolidated	statements	of	earnings	were	$12.22	billion for	2011,	a	21%	decline	compared	with	$15.38	billion	for	2010.	The	ratio	of compensation	and	benefits	to	net	revenues	for	2011	was	42.4%,	compared	with 39.3% 	 1	(which	excludes	 the	 impact	of	 the	U.K.	bank	payroll	 tax)	for	2010. Operating	expenses	for	2010	 included	$465	million	related	 to	 the	U.K.	bank payroll	tax.	Total	staff	decreased	7%	during	2011.

Non-compensation	 expenses	 on	 the	 consolidated	 statements	 of	 earnings	 were $10.42	 billion for	 2011,	 essentially	 unchanged	 compared	 with	 2010.	 Non- compensation	expenses	for	2011	included	higher	brokerage,	clearing,	exchange and	distribution	fees,	increased	reserves	related	to	our	reinsurance	business	and higher	market	development	expenses	compared	with	2010.	These	increases	were offset	 by	 lower	 other	 expenses	 during	 2011.	The	 decrease	 in	 other	 expenses primarily	reflected	lower	net	provisions	for	litigation	and	regulatory	proceedings (2010	included	$550	million	related	to	a	settlement	with	the	SEC).	In	addition, non-compensation	 expenses	 during	 2011	 included	 impairment	 charges	 of approximately	$440	million,	primarily	related	to	consolidated	investments	and Litton	Loan	Servicing	LP.	Charitable	contributions	were	$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.

1. We	believe	that	presenting	our	ratio	of	compensation	and	benefits	to	net	revenues	excluding	the	impact	of	the	$465	million	U.K.	bank	payroll	tax	is	meaningful,	as	excluding	it	increases	the comparability	of	period-to-period	results.	The	ratio	of	compensation	and	benefits	to	net	revenues	excluding	the	impact	of	this	item	is	a	non-GAAP	measure	and	may	not	be	comparable	to	similar non-GAAP	measures	used	by	other	companies.	The	table	below	presents	the	calculation	of	the	ratio	of	compensation	and	benefits	to	net	revenues	including	and	excluding	the	impact	of	this	item.

| Year	Ended | Year	Ended |
| :--- | :--- |
| $\tin\tmillions | December\t2010 |
| Compensation\tand\tbenefits\t(which\texcludes\tthe\timpact\tof\tthe\t$465\tmillion\tU.K.\tbank\tpayroll\ttax) | $15,376 |
| Ratio\tof\tcompensation\tand\tbenefits\tto\tnet\trevenues | 39.3% |
| Compensation\tand\tbenefits,\tincluding\tthe\timpact\tof\tthe\t$465\tmillion\tU.K.\tbank\tpayroll\ttax | $15,841 |
| Ratio\tof\tcompensation\tand\tbenefits\tto\tnet\trevenues,\tincluding\tthe\timpact\tof\tthe\t$465\tmillion\tU.K.\tbank\tpayroll\ttax | 40.5% |
| Goldman\tSachs\t2012\tForm\t10-K | 57 |

# Provision	for	Taxes

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	effective	income	tax	rate	for	2011	was	28.0%,	down	from	35.2%	for	2010. Excluding	 the	 impact	 of	 the	 $465	 million	 U.K.	 bank	 payroll	 tax	 and	 the $550	million	SEC	settlement,	substantially	all	of	which	was	non-deductible,	the effective	income	tax	rate	for	2010	was	32.7% 	 1.	The	decrease	from	32.7%	to 28.0%	was	primarily	due	to	an	increase	in	permanent	benefits	as	a	percentage	of earnings	and	the	earnings	mix.

1. We	believe	that	presenting	our	effective	income	tax	rate	for	2010	excluding	the	impact	of	the	U.K.	bank	payroll	tax	and	the	SEC	settlement,	substantially	all	of	which	was	non-deductible,	is meaningful	as	excluding	these	items	increases	the	comparability	of	period-to-period	results.	The	effective	income	tax	rate	excluding	the	impact	of	these	items	is	a	non-GAAP	measure	and	may not	be	comparable	to	similar	non-GAAP	measures	used	by	other	companies.	The	table	below	presents	the	calculation	of	the	effective	income	tax	rate	excluding	the	impact	of	these	amounts.

|  |  | Year	Ended	December	2010 |  |
| :--- | :--- | :--- | :--- |
|  | Pre-tax | Provision | Effective\tincome |
| $\tin\tmillions | earnings | for\ttaxes | tax\trate |
| As\treported | \t $12,892 | $4,538 | 35.2% |
| Add\tback:\nImpact\tof\tthe\tU.K.\tbank\tpayroll\ttax | 465 | — |  |
| Impact\tof\tthe\tSEC\tsettlement | 550 | 6 |  |
| As\tadjusted | \t $13,907 | $4,544 | 32.7% |

# Segment	Operating	Results

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

|  |  |  | Year	Ended	December |  |
| :--- | :--- | :--- | :--- | :--- |
| in\tmillions |  | 2012 | 2011 | 2010 |
| Investment\tBanking | Net\trevenues | \t$\t\t4,926 | \t$\t\t4,355 | \t$\t\t4,810 |
|  | Operating\texpenses | 3,330 | 2,995 | 3,459 |
|  | Pre-tax\tearnings | \t$\t\t1,596 | \t$\t\t1,360 | \t$\t\t1,351 |
| Institutional\tClient\tServices | Net\trevenues | \t$18,124 | \t$17,280 | \t$21,796 |
|  | Operating\texpenses | 12,480 | 12,837 | 14,994 |
|  | Pre-tax\tearnings | \t$\t\t5,644 | \t$\t\t4,443 | \t$\t\t6,802 |
| Investing\t&amp;\tLending | Net\trevenues | \t$\t\t5,891 | \t$\t\t2,142 | \t$\t\t7,541 |
|  | Operating\texpenses | 2,666 | 2,673 | 3,361 |
|  | Pre-tax\tearnings/(loss) | \t$\t\t3,225 | \t$\t\t\t\t(531) | \t$\t\t4,180 |
| Investment\tManagement | Net\trevenues | \t$\t\t5,222 | \t$\t\t5,034 | \t$\t\t5,014 |
|  | Operating\texpenses | 4,294 | 4,020 | 4,082 |
|  | Pre-tax\tearnings | \t$\t\t\t\t\t928 | \t$\t\t1,014 | \t$\t\t\t\t\t932 |
| Total | Net\trevenues | \t$34,163 | \t$28,811 | \t$39,161 |
|  | Operating\texpenses | 22,956 | 22,642 | 26,269 |
|  | Pre-tax\tearnings | \t$11,207 | \t$\t\t6,169 | \t$12,892 |

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

Ÿ	real	estate-related	exit	costs	of	$17	million,	$14	million	and	$28	million	for the	 years	 ended	 December	 2012,	 December	 2011	 and	 December	 2010, respectively.	Real	estate-related	exit	costs	are	included	in	"Depreciation	and amortization"	and	"Occupancy"	in	the	consolidated	statements	of	earnings.

Operating	 expenses	 related	 to	 net	 provisions	 for	 litigation	 and	 regulatory proceedings,	previously	not	allocated	to	our	segments,	have	now	been	allocated. This	allocation	is	consistent	with	the	manner	in	which	management	currently views	the	performance	of	our	segments.	Reclassifications	have	been	made	 to previously	reported	segment	amounts	to	conform	to	the	current	presentation.

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	 this 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.

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.

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

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.

Net	revenues	in	Financial	Advisory	were	$1.98	billion,	essentially	unchanged compared	 with	 2011.	 Net	 revenues	 in	 our	 Underwriting	 business	 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.	If	macroeconomic	concerns	continue	and	result	 in	 lower levels	of	client	activity,	net	revenues	 in	Investment	Banking	would	 likely	be negatively	impacted.

Our	investment	banking	transaction	backlog	increased	compared	with	the	end	of 2011.	The	increase	compared	with	the	end	of	2011	was	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.

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	$3.33	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.

Net	revenues	in	Financial	Advisory	were	$1.99	billion,	4%	lower	than	2010.	Net revenues	in	our	Underwriting	business	were	$2.37	billion,	14%	lower	than	2010, reflecting	significantly	 lower	net	revenues	 in	equity	underwriting,	principally due	to	a	decline	in	industry-wide	activity.	Net	revenues	in	debt	underwriting were	essentially	unchanged	compared	with	2010.

Investment	 Banking	 operated	 in	 an	 environment	 generally	 characterized	 by significant	declines	in	industry-wide	underwriting	and	mergers	and	acquisitions activity	levels	during	the	second	half	of	2011.	These	declines	reflected	increased concerns	 regarding	 the	 weakened	 state	 of	 global	 economies,	 including heightened	 European	 sovereign	 debt	 risk,	 which	 contributed	 to	 a	 significant widening	in	credit	spreads,	a	sharp	increase	in	volatility	levels	and	a	significant decline	in	global	equity	markets	during	the	second	half	of	2011.

Our	investment	banking	transaction	backlog	increased	compared	with	the	end	of 2010.	The	increase	compared	with	the	end	of	2010	was	due	to	an	increase	in potential	 equity	 underwriting	 transactions,	 primarily	 reflecting	 an	 increase	 in client	mandates	 to	underwrite	 initial	public	offerings.	Estimated	net	revenues from	potential	debt	underwriting	transactions	decreased	slightly	compared	with the	end	of	2010.	Estimated	net	revenues	from	potential	advisory	 transactions were	essentially	unchanged	compared	with	the	end	of	2010.

Operating	expenses	were	$3.00	billion	for	2011,	13%	lower	than	2010,	due	to decreased	compensation	and	benefits	expenses,	primarily	resulting	from	lower net	revenues.	Pre-tax	earnings	were	$1.36	billion	in	2011,	essentially	unchanged compared	with	2010.

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.

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 this	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,	as	well	as	commissions	and	fees	from	executing	and	clearing institutional	client	transactions	on	major	stock,	options	and	futures	exchanges worldwide.	 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,	and	revenues	related	to	our	reinsurance	activities.

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

|  |  | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Fixed\tIncome,\tCurrency\tand\tCommodities\nClient\tExecution | \t\t$\t9,914 | \t$\t9,018 | \t$13,707 |
| Equities\tclient\texecution\t^1 | 3,171 | 3,031 | 3,231 |
| Commissions\tand\tfees | 3,053 | 3,633 | 3,426 |
| Securities\tservices | 1,986 | 1,598 | 1,432 |
| Total\tEquities | 8,210 | 8,262 | 8,089 |
| Total\tnet\trevenues | \t\t 18,124 | \t 17,280 | 21,796 |
| Operating\texpenses | \t\t 12,480 | \t 12,837 | 14,994 |
| Pre-tax\tearnings | \t\t$\t5,644 | \t$\t4,443 | \t$\t\t6,802 |

1.Includes	net	revenues	related	to	reinsurance	of	$1.08	billion,	$880	million	and	$827	million	for the	years	ended	December	2012,	December	2011	and	December	2010,	respectively.

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	addition,	net	revenues	in	credit	products	and	interest	rate	products	were solid	and	higher	compared	with	2011.	These	increases	were	partially	offset	by significantly	lower	net	revenues	in	commodities	and	slightly	lower	net	revenues in	 currencies.	Although	 broad	 market	 concerns	 persisted	 during	 2012,	 Fixed Income,	Currency	and	Commodities	Client	Execution	operated	in	a	generally improved	 environment	 characterized	 by	 tighter	 credit	 spreads	 and	 less challenging	market-making	conditions	compared	with	2011.

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	approximately	$500	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 lower	 market	 volumes.	 During	 2012,	 Equities	 operated	 in	 an	 environment generally	 characterized	 by	 an	 increase	 in	 global	 equity	 prices	 and	 lower volatility	levels.

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.	If these	concerns	and	uncertainties	continue	over	the	long	term,	net	revenues	in Fixed	Income,	Currency	and	Commodities	Client	Execution	and	Equities	would likely	be	negatively	impacted.

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.

Net	 revenues	 in	 Fixed	 Income,	 Currency	 and	 Commodities	 Client	 Execution were	 $9.02	 billion	 for	 2011,	 34%	 lower	 than	 2010.	Although	 activity	 levels during	2011	were	generally	consistent	with	2010	levels,	and	results	were	solid during	the	first	quarter	of	2011,	the	environment	during	the	remainder	of	2011 was	characterized	by	broad	market	concerns	and	uncertainty,	resulting	in	volatile markets	 and	 significantly	 wider	 credit	 spreads,	 which	 contributed	 to	 difficult market-making	conditions	and	led	to	reductions	in	risk	by	us	and	our	clients.	As a	 result	 of	 these	 conditions,	 net	 revenues	 across	 the	 franchise	 were	 lower, including	 significant	 declines	 in	 mortgages	 and	 credit	 products,	 compared with	2010.

Net	revenues	 in	Equities	were	$8.26	billion	for	2011,	2%	higher	 than	2010. During	2011,	average	volatility	levels	increased	and	equity	prices	in	Europe	and Asia	declined	significantly,	particularly	during	the	third	quarter.	The	increase	in net	 revenues	 reflected	 higher	 commissions	 and	 fees,	 primarily	 due	 to	 higher market	volumes,	particularly	during	the	third	quarter	of	2011.	In	addition,	net revenues	 in	 securities	 services	 increased	 compared	 with	 2010,	 reflecting	 the impact	 of	 higher	 average	 customer	 balances.	 Equities	 client	 execution	 net revenues	 were	 lower	 than	 2010,	 primarily	 reflecting	 significantly	 lower	 net revenues	in	shares.

The	net	gain	attributable	to	the	impact	of	changes	in	our	own	credit	spreads	on borrowings	 for	 which	 the	 fair	 value	 option	 was	 elected	 was	 $596	 million ($399	 million and $197	 million related	 to	 Fixed	 Income,	 Currency	 and Commodities	Client	Execution	and	equities	client	execution,	respectively)	for 2011,	compared	with	a	net	gain	of	$198	million	($188	million	and	$10	million related	 to	 Fixed	 Income,	 Currency	 and	 Commodities	 Client	 Execution	 and equities	client	execution,	respectively)	for	2010.

Institutional	Client	Services	operated	in	an	environment	generally	characterized by	 increased	 concerns	 regarding	 the	 weakened	 state	 of	 global	 economies, including	 heightened	 European	 sovereign	 debt	 risk,	 and	 its	 impact	 on	 the European	banking	system	and	global	financial	institutions.	These	conditions	also impacted	 expectations	 for	 economic	 prospects	 in	 the	 United	 States	 and	 were reflected	in	equity	and	debt	markets	more	broadly.	In	addition,	the	downgrade	in credit	ratings	of	the	U.S.	government	and	federal	agencies	and	many	financial institutions	during	the	second	half	of	2011	contributed	to	further	uncertainty	in the	markets.	These	concerns,	as	well	as	other	broad	market	concerns,	such	as uncertainty	 over	 financial	 regulatory	 reform,	 continued	 to	 have	 a	 negative impact	on	our	net	revenues	during	2011.

Operating	expenses	were	$12.84	billion	for	2011,	14%	lower	than	2010,	due	to decreased	compensation	and	benefits	expenses,	primarily	resulting	from	lower net	 revenues,	 lower	 net	 provisions	 for	 litigation	 and	 regulatory	 proceedings (2010	included	$550	million	related	to	a	settlement	with	the	SEC),	the	impact	of the	U.K.	bank	payroll	tax	during	2010,	as	well	as	an	impairment	of	our	NYSE DMM	rights	of	$305	million	during	2010.	These	decreases	were	partially	offset by	 higher	 brokerage,	 clearing,	 exchange	 and	 distribution	 fees,	 principally reflecting	 higher	 transaction	 volumes	 in	 Equities.	 Pre-tax	 earnings	 were $4.44	billion	in	2011,	35%	lower	than	2010.

Investing	 &	 Lending	 includes	 our	 investing	 activities	 and	 the	 origination	 of 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	and	loans,	public	and	private	equity securities, real estate, consolidated	 investment	 entities	 and	 power generation	facilities.

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

2012	versus	2011.	Net	revenues	in	Investing	&	Lending	were	$5.89	billion and	$2.14	billion	for	2012	and	2011,	respectively.	During	2012,	Investing	& Lending	net	revenues	were	positively	impacted	by	tighter	credit	spreads	and	an increase	in	global	equity	prices.	Results	for	2012	included	a	gain	of	$408	million from	our	investment	in	the	ordinary	shares	of	ICBC,	net	gains	of	$2.39	billion from	other	investments	in	equities,	primarily	in	private	equities,	net	gains	and	net interest	income	of	$1.85	billion	from	debt	securities	and	loans,	and	other	net revenues	 of	 $1.24	 billion,	 principally	 related	 to	 our	 consolidated	 investment entities.	 If	 equity	 markets	 decline	 or	 credit	 spreads	 widen,	 net	 revenues	 in Investing	&	Lending	would	likely	be	negatively	impacted.

2011	versus	2010.	Net	revenues	in	Investing	&	Lending	were	$2.14	billion and	$7.54	billion	for	2011	and	2010,	respectively.	During	2011,	Investing	& Lending	results	reflected	an	operating	environment	characterized	by	a	significant decline	in	equity	markets	in	Europe	and	Asia,	and	unfavorable	credit	markets that	were	negatively	impacted	by	increased	concerns	regarding	the	weakened state	of	global	economies,	including	heightened	European	sovereign	debt	risk. Results	for	2011	included	a	 loss	of	$517	million	from	our	 investment	 in	 the ordinary	shares	of	ICBC	and	net	gains	of	$1.12	billion	from	other	investments	in equities,	 primarily	 in	 private	 equities,	 partially	 offset	 by	 losses	 from	 public equities.	In	addition,	Investing	&	Lending	included	net	revenues	of	$96	million from	debt	securities	and	loans.	This	amount	includes	approximately	$1	billion	of unrealized	losses	related	to	relationship	lending	activities,	including	the	effect	of hedges,	offset	by	net	interest	income	and	net	gains	from	other	debt	securities	and loans.	 Results	 for	 2011	 also	 included	 other	 net	 revenues	 of	 $1.44	 billion, principally	related	to	our	consolidated	investment	entities.

Results	for	2010	included	a	gain	of	$747	million	from	our	investment	in	the ordinary	shares	of	ICBC,	a	net	gain	of	$2.69	billion	from	other	investments	in equities,	a	net	gain	of	$2.60	billion	from	debt	securities	and	loans	and	other	net revenues	 of	 $1.51	 billion,	 principally	 related	 to	 our	 consolidated	 investment entities.	The	net	gain	from	other	investments	in	equities	was	primarily	driven	by an	increase	in	global	equity	markets,	which	resulted	in	appreciation	of	both	our public	and	private	equity	positions	and	provided	favorable	conditions	for	initial public	offerings.	The	net	gains	and	net	interest	from	debt	securities	and	loans primarily	 reflected	 the	 impact	 of	 tighter	 credit	 spreads	 and	 favorable	 credit markets	 during	 the	 year,	 which	 provided	 favorable	 conditions	 for	 borrowers to	refinance.

Operating	expenses	were	$2.67	billion	for	2011,	20%	lower	than	2010,	due	to decreased	compensation	and	benefits	expenses,	primarily	resulting	from	lower net	revenues.	This	decrease	was	partially	offset	by	the	impact	of	impairment charges	 related	 to	 consolidated	 investments	 during	 2011.	 Pre-tax	 loss	 was $531	million	in	2011,	compared	with	pre-tax	earnings	of	$4.18	billion	in	2010.

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	management	and	other	client	assets	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.

In	certain	circumstances,	we	are	also	entitled	to	receive	incentive	fees	based	on	a percentage	of	a	fund'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.

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

The	tables	below	present	our	assets	under	supervision,	including	assets	under management	by	asset	class	and	other	client	assets,	as	well	as	a	summary	of	the changes	in	our	assets	under	supervision.

1.Includes	$34	billion	of	fixed	income	asset	inflows	in	connection	with	our	acquisition	of	Dwight Asset	 Management, including	 $17	 billion in	 assets	 under	 management	 and	 $17	 billion in other	client	assets,	and	$5	billion	of	fixed	income	and	equity	asset	outflows	in	connection	with our liquidation of Goldman Sachs Asset	 Management Korea, all related to assets under	management.

2.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.

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	the	year,	assets	under	supervision	increased $70	billion	to	$965	billion.	Assets	under	management	increased	$26	billion	to $854	billion,	reflecting	net	market	appreciation	of	$44	billion,	primarily	in	fixed income	and	equity	assets,	partially	offset	by	net	outflows	of	$18	billion.	Net outflows	in	assets	under	management	included	outflows	in	equity,	alternative investment	and	money	market	assets,	partially	offset	by	inflows	in	fixed	income assets.	Other	client	assets	increased	$44	billion	to	$111	billion,	primarily	due	to net	inflows,	principally	in	client	assets	invested	with	third-party	managers	and assets	related	to	advisory	relationships.

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	assets	under	supervision	has	shifted	slightly from	 asset	 classes	 that	 typically	 generate	 higher	 fees	 to	 asset	 classes	 that typically	generate	lower	fees	compared	with	2011.	In	the	future,	if	asset	prices were	 to	 decline,	 or	 investors	 continue	 to	 favor	 asset	 classes	 that	 typically generate	lower	fees	or	investors	continue	to	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.

2011 versus 2010.	Net revenues	 in	 Investment	 Management	 were $5.03	billion	for	2011,	essentially	unchanged	compared	with	2010,	primarily	due to	higher	management	and	other	fees,	reflecting	favorable	changes	in	the	mix	of assets	under	management,	offset	by	lower	incentive	fees.	During	2011,	assets under	 supervision	 decreased $22 billion	 to $895 billion.	 Assets	 under management	decreased	$12	billion	to	$828	billion,	reflecting	net	outflows	of $17 billion,	 partially	 offset	 by	 net	 market	 appreciation	 of $5 billion.	 Net outflows	 in	 assets	 under	 management	 primarily	 reflected	 outflows	 in	 fixed income	and	equity	assets,	partially	offset	by	inflows	in	money	market	assets. Other	client	assets	decreased	$10	billion	 to	$67	billion,	primarily	due	 to	net outflows,	 principally	 in	 client	 assets	 invested	 with	 third-party	 managers	 in money	market	funds.

During	 the	 first	 half	 of	 2011,	 Investment	 Management	 operated	 in	 an environment	 generally	 characterized	 by	 improved	 asset	 prices	 and	 a	 shift	 in investor	 assets	 away	 from	 money	 markets	 in	 favor	 of	 asset	 classes	 with potentially	higher	risk	and	returns.	However,	during	the	second	half	of	2011, asset	 prices	 declined,	 particularly	 in	 equities,	 in	 part	 driven	 by	 increased uncertainty	regarding	the	global	economic	outlook.	Declining	asset	prices	and economic	uncertainty	contributed	to	investors	shifting	assets	away	from	asset classes	with	potentially	higher	risk	and	returns	to	asset	classes	with	lower	risk and	returns.

# Geographic	Data

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

# Regulatory	Developments

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.	The	implications	of	the	Dodd-Frank	Act	for	our businesses	will	depend	to	a	large	extent	on	the	rules	that	will	be	adopted	by	the Federal	Reserve	Board,	the	Federal	Deposit	Insurance	Corporation	(FDIC),	the SEC,	 the	 U.S.	 Commodity	 Futures	 Trading	 Commission	 (CFTC)	 and	 other agencies	 to	 implement	 the	 legislation,	 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	and	these	reforms	may	affect	our businesses.	We	expect	that	the	principal	areas	of	impact	from	regulatory	reform for	us	will	be:

Ÿ	the	Dodd-Frank	prohibition	on	"proprietary	trading"	and	the	limitation	on	the sponsorship	of,	and	investment	in,	hedge	funds	and	private	equity	funds	by banking	 entities,	 including	 bank	 holding	 companies,	 referred	 to	 as	 the "Volcker	Rule";

Ÿ	increased	regulation	of	and	restrictions	on	over-the-counter	(OTC)	derivatives markets	and	transactions;	and

Ÿ	increased	regulatory	capital	requirements.

In	October	2011,	the	proposed	rules	to	implement	the	Volcker	Rule	were	issued and	included	an	extensive	request	for	comments	on	the	proposal.	The	proposed rules	are	highly	complex,	and	many	aspects	of	the	Volcker	Rule	remain	unclear. The	full	impact	of	the	rule	on	us	will	depend	upon	the	detailed	scope	of	the prohibitions,	 permitted	 activities,	 exceptions	 and	 exclusions,	 and	 will	 not	 be known	 with	 certainty	 until	 the	 rules	 are	 finalized	 and	 market	 practices	 and structures	develop	under	the	final	rules.	Currently,	companies	are	expected	to	be required	to	be	in	compliance	by	July	2014	(subject	to	possible	extensions).

In	addition,	we	have	evaluated	the	limitations	on	sponsorship	of,	and	investments in,	hedge	funds	and	private	equity	funds.	The	firm	earns	management	fees	and incentive	fees	for	investment	management	services	from	hedge	funds	and	private equity	funds,	which	are	included	in	our	Investment	Management	segment.	The firm	 also	 makes	 investments	 in	 funds,	 and	 the	 gains	 and	 losses	 from	 these investments	are	included	in	our	Investing	&	Lending	segment;	these	gains	and losses	will	be	impacted	by	the	Volcker	Rule.	The	Volcker	Rule	limitation	on investments	in	hedge	funds	and	private	equity	funds	requires	the	firm	to	reduce its	investment	in	each	hedge	fund	and	private	equity	fund	to	3%	or	less	of	the fund's	net	asset	value,	and	to	reduce	the	firm's	aggregate	investment	in	all	such funds	 to	 3%	 or	 less	 of	 the	 firm's	 Tier	 1	 capital.	 The	 firm's	 aggregate	 net revenues	from	its	investments	in	hedge	funds	and	private	equity	funds	were	not material	to	the	firm's	aggregate	total	net	revenues	over	the	period	from	1999 through	2012.	We	continue	to	manage	our	existing	private	equity	funds,	taking into	account	the	transition	periods	under	the	Volcker	Rule.	With	respect	to	our hedge	funds,	we	currently	plan	to	comply	with	the	Volcker	Rule	by	redeeming certain	of	our	interests	in	the	funds.	Since	March	2012,	we	have	been	redeeming up	 to	 approximately	 10%	 of	 certain	 hedge	 funds'	 total	 redeemable	 units	 per quarter,	 and	 expect	 to	 continue	 to	 do	 so	 through	 June	 2014.	 We	 redeemed approximately	$1.06	billion	of	these	interests	in	hedge	funds	during	the	year ended	December	2012.	In	addition,	we	have	limited	the	firm's	initial	investment to	3%	for	certain	new	investments	in	hedge	funds	and	private	equity	funds.

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	 Goldman	 Sachs	 Bank	 USA	 (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.	 We	 submitted	 our resolution	plan	to	the	regulators	on	June	29,	2012.	GS	Bank	USA	also	submitted its	resolution	plan	on	June	29,	2012,	as	required	by	the	FDIC.

In	September	2011,	the	SEC	proposed	rules	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	except	bona	fide	market- making	 activities	 and	 risk-mitigating	 hedging	 activities	 in	 connection	 with securitization	activities	from	the	general	prohibition.	We	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.

In	December	2011,	the	Federal	Reserve	Board	proposed	regulations	designed	to strengthen	the	regulation	and	supervision	of	large	bank	holding	companies	and systemically	important	nonbank	financial	institutions.	These	proposals	address, among	 other	 things,	 risk-based	 capital	 and	 leverage	 requirements,	 liquidity requirements,	overall	risk	management	requirements,	single	counterparty	limits and	 early	 remediation	 requirements	 that	 are	 designed	 to	 address	 financial weakness	at	an	early	stage.	Although	many	of	the	proposals	mirror	initiatives	to which	bank	holding	companies	are	already	subject,	their	full	impact	on	the	firm will	 not	 be	 known	 with	 certainty	 until	 the	 rules	 are	 finalized	 and	 market practices	 and	 structures	 develop	 under	 the	 final	 rules.	 In	 addition,	 in October	2012,	 the	Federal	Reserve	Board	 issued	final	rules	for	stress	 testing requirements	 for	 certain	 bank	 holding	 companies,	 including	 the	 firm.	 See "Equity	 Capital"	 below	 for	 further	 information	 about	 our	 Comprehensive Capital	Analysis	and	Review	(CCAR).

The	 Dodd-Frank	 Act	 also	 contains	 provisions	 that	 include	 (i)	 requiring	 the registration	of	all	swap	dealers	and	major	swap	participants	with	the	CFTC	and of	security-based	swap	dealers	and	major	security-based	swap	participants	with the	SEC,	the	clearing	and	execution	of	certain	swaps	and	security-based	swaps through	central	counterparties,	regulated	exchanges	or	electronic	facilities	and real-time	public	and	regulatory	reporting	of	trade	information,	(ii)	placing	new business	conduct	standards	and	other	requirements	on	swap	dealers,	major	swap participants,	 security-based	 swap	 dealers	 and	 major	 security-based	 swap participants,	 covering	 their	 relationships	 with	 counterparties,	 their	 internal oversight	 and	 compliance	 structures,	 conflict	 of	 interest	 rules,	 internal information	 barriers,	 general	 and	 trade-specific	 record-keeping	 and	 risk management,	(iii)	establishing	mandatory	margin	requirements	for	trades	that	are not	cleared	through	a	central	counterparty,	(iv)	position	limits	that	cap	exposure to	 derivatives	 on	 certain	 physical	 commodities	 and	 (v)	 entity-level	 capital requirements	 for	 swap	 dealers,	 major	 swap	 participants,	 security-based	 swap dealers	and	major	security-based	swap	participants.

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	 capital regulations,	certain	of	the	requirements,	including	registration	of	swap	dealers 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.	The	CFTC	has	finalized	a	number	of	other	implementing	rules	and	laid out	a	series	of	implementation	deadlines	in	2013,	covering	rules	for	business conduct	standards	for	swap	dealers	and	clearing	requirements.

We	have	registered	certain	subsidiaries	as	"swap	dealers"	under	the	CFTC	rules, including	Goldman,	Sachs	&	Co.	(GS&Co.),	GS	Bank	USA,	Goldman	Sachs International	(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. Similar	regulations	have	been	proposed	or	adopted	in	jurisdictions	outside	the United	States	and,	in	July	2012	and	February	2013,	the	Basel	Committee	and	the International	 Organization	 of	 Securities	 Commissions	 released	 consultative documents	proposing	margin	requirements	for	non-centrally-cleared	derivatives. The	full	impact	of	the	various	U.S.	and	non-U.S.	regulatory	developments	in	this area	will	not	be	known	with	certainty	until	the	rules	are	implemented	and	market practices	and	structures	develop	under	the	final	rules.

The	Dodd-Frank	Act	also	establishes	the	Consumer	Financial	Protection	Bureau, which	has	broad	authority	 to	regulate	providers	of	credit,	payment	and	other consumer	financial	products	and	services,	and	has	oversight	over	certain	of	our products	and	services.

See	Note	20	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this Form	10-K	for	additional	 information	about	regulatory	developments	as	 they relate	to	our	regulatory	capital	ratios.

See	"Business	—	Regulation"	 in	Part	I,	Item	1	of	 this	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.

# 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	and adjusted	 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.

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	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 macro-economic	 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	 Internal	 Capital	 Adequacy	 Assessment	 Process	 (ICAAP), CCAR,	the	stress	tests	we	are	required	to	conduct	under	the	Dodd-Frank	Act, and	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.	The	table	below	presents	a	summary	of	this	balance	sheet	allocation.

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Excess\tliquidity\t(Global\tCore\tExcess) | \t\t$174,622 | \t$171,581 |
| Other\tcash | 6,839 | 7,888 |
| Excess\tliquidity\tand\tcash | 181,461 | 179,469 |
| Secured\tclient\tfinancing | 229,442 | 283,707 |
| Inventory | 318,323 | 273,640 |
| Secured\tfinancing\tagreements | 76,277 | 71,103 |
| Receivables | 36,273 | 35,769 |
| Institutional\tClient\tServices | 430,873 | 380,512 |
| ICBC\t^1 | 2,082 | 4,713 |
| Equity\t(excluding\tICBC) | 21,267 | 23,041 |
| Debt | 25,386 | 23,311 |
| Receivables\tand\tother | 8,421 | 5,320 |
| Investing\t&amp;\tLending | 57,156 | 56,385 |
| Total\tinventory\tand\trelated\tassets | 488,029 | 436,897 |
| Other\tassets\t^2 | 39,623 | 23,152 |
| Total\tassets | \t\t$938,555 | \t$923,225 |

1.In	January	2013,	we	sold	approximately	45%	of	our	ordinary	shares	of	ICBC.

2.Includes	 assets related to	 our reinsurance	 business classified	 as	 held for sale	 as	 of December	2012.	See	Note	12	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of this	Form	10-K	for	further	information.

The	following	is	a	description	of	the	captions	in	the	table	above.

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.

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	 client	 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	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.

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 this	 Form	 10-K	 because total	 assets	 disclosed in	 Note	 25 include	allocations	of	our	excess	liquidity	and	cash,	secured	client	financing	and other	assets.

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.

# Balance	Sheet	Analysis	and	Metrics

As	of	December	2012,	total	assets	on	our	consolidated	statements	of	financial condition	 were $938.56 billion,	 an	 increase	 of $15.33 billion	 from December	2011.	This	increase	was	primarily	due	to	(i)	an	increase	in	financial instruments	owned,	at	fair	value	of	$42.81	billion,	due	to	increases	in	equities and	 convertible	 debentures	 and	 non-U.S.	 government	 and	 agency	 obligations and	(ii)	an	increase	in	cash	and	cash	equivalents	of	$16.66	billion,	primarily	due to	 increases	 in	 interest-bearing	 deposits	 with	 banks.	 These	 increases	 were partially	offset	by	decreases	in	securities	purchased	under	agreements	to	resell and	 federal	 funds	 sold	 of $46.46 billion,	 primarily	 due	 to	 firm	 and client	activities.

As	of	December	2012,	total	liabilities	on	our	consolidated	statements	of	financial condition	 were $862.84 billion,	 an	 increase of $9.99 billion	 from December	2011.	This	increase	was	primarily	due	to	an	increase	in	deposits	of $24.02	billion,	primarily	due	to	increases	in	client	activity.	This	increase	was partially	offset	by	a	decrease	in	financial	instruments	sold,	but	not	yet	purchased, at	fair	value	of	$18.37	billion,	primarily	due	to	decreases	in	derivatives	and	U.S. government	and	federal	agency	obligations.

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.	As	of	December	2012,	the	increase	in	our	repurchase	agreements relative	to	the	daily	average	during	the	year	was	primarily	due	to	an	increase	in firm	financing	activities.	As	of	December	2011,	our	total	securities	sold	under agreements	 to	 repurchase,	 accounted	 for	 as	 collateralized	 financings,	 were $164.50	billion,	which	was	7%	higher	and	3%	higher	than	the	daily	average amount	 of	 repurchase	 agreements	 during	 the	 quarter	 ended	 and	 year	 ended December	 2011,	 respectively.	 As	 of	 December	 2011,	 the	 increase	 in	 our repurchase	agreements	relative	to	the	daily	average	during	the	quarter	and	year was	primarily	due	to	increases	in	client	activity	at	the	end	of	the	year.	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 | As	of	December |
| :--- | :--- | :--- |
| $\tin\tmillions | 2012 | 2011 |
| Total\tassets | \t\t$938,555 | \t$923,225 |
| Adjusted\tassets | \t\t$686,874 | \t$604,391 |
| Unsecured\tlong-term\tborrowings | \t\t$167,305 | \t$173,545 |
| Total\tshareholders'\tequity | \t\t$\t\t75,716 | \t$\t\t70,379 |
| Leverage\tratio | 12.4x | 13.1x |
| Adjusted\tleverage\tratio | 9.1x | 8.6x |
| Debt\tto\tequity\tratio | 2.2x | 2.5x |

Adjusted assets.	Adjusted	 assets	 equals	 total	 assets	 less	 (i)	 low-risk collateralized	 assets	 generally	 associated	 with	 our	 secured	 client	 financing transactions,	federal	funds	sold	and	excess	liquidity	(which	includes	financial instruments	sold,	but	not	yet	purchased,	at	fair	value,	less	derivative	liabilities) and	 (ii)	 cash	 and	 securities	 we	 segregate	 for	 regulatory	 and	 other	 purposes. Adjusted	assets	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	assets	to	adjusted	assets.

|  |  | As	of	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions |  | 2012 | 2011 |
| Total\tassets | Total\tassets | \t$\t938,555 | \t$\t923,225 |
| Deduct:\tSecurities\tborrowed | Deduct:\tSecurities\tborrowed | (136,893) | (153,341) |
| Securities\tpurchased\tunder\tagreements\tto\tresell\tand | Securities\tpurchased\tunder\tagreements\tto\tresell\tand |  |  |
| federal\tfunds\tsold | federal\tfunds\tsold | (141,334) | (187,789) |
| Add: | Financial\tinstruments\tsold,\tbut |  |  |
| not\tyet\tpurchased,\tat\tfair\tvalue | not\tyet\tpurchased,\tat\tfair\tvalue | 126,644 | 145,013 |
| \tLess\tderivative\tliabilities | \tLess\tderivative\tliabilities | (50,427) | (58,453) |
| \tSubtotal | \tSubtotal | (202,010) | (254,570) |
| Deduct: | Cash\tand\tsecurities\tsegregated\tfor\tregulatory\tand\tother |  |  |
| purposes | purposes | (49,671) | (64,264) |
| Adjusted\tassets | Adjusted\tassets | \t$\t686,874 | \t$\t604,391 |

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	this	Form	10-K.

Adjusted	leverage	ratio.	The	adjusted	leverage	ratio	equals	adjusted	assets divided	by	total	shareholders'	equity.	We	believe	that	the	adjusted	leverage	ratio is	a	more	meaningful	measure	of	our	capital	adequacy	than	the	leverage	ratio because	 it	 excludes	 certain	 low-risk	 collateralized	 assets	 that	 are	 generally supported	with	little	or	no	capital.	The	adjusted	leverage	ratio	is	a	non-GAAP measure	and	may	not	be	comparable	to	similar	non-GAAP	measures	used	by other	companies.

Our	adjusted	leverage	ratio	increased	to	9.1x	as	of	December	2012	from	8.6x	as of	December	2011	as	our	adjusted	assets	increased.

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

# 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.

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	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.	commercial	paper	and promissory	note	issuances	and	other	methods.

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 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	Note	6	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this Form 10-K for	 further	 information	 about	 the	 classification	 of	 financial instruments	 in	 the	 fair	 value	 hierarchy	 and	 see	 "—Unsecured	 Long-Term Borrowings"	below	for	further	information	about	the	use	of	unsecured	long-term borrowings	as	a	source	of	funding.

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	2012.

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	2018	as	of December	2012.

The	weighted	average	maturity	of	our	unsecured	 long-term	borrowings	as	of December	2012	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	this	Form	10-K	for	further	information	about	our	unsecured long-term	borrowings.

Temporary	Liquidity	Guarantee	Program	(TLGP).	The	remaining	portion of	 our senior	 unsecured short-term	 debt	 guaranteed	 by the	 FDIC	 under the TLGP	matured	during	the	second	quarter	of	2012.	As	of	December	2012,	no borrowings	guaranteed	by	the	FDIC	under	the	TLGP	were	outstanding	and	the program	had	expired	for	new	issuances.

Deposits.	As	part	of	our	efforts	to	diversify	our	funding	base,	deposits	have become	a	more	meaningful	share	of	our	funding	activities.	GS	Bank	USA	has been	actively	growing	its	deposit	base	with	an	emphasis	on	issuance	of	long- term	certificates	of	deposit	and	on	expanding	our	deposit	sweep	program,	which involves	long-term	contractual	agreements	with	several	U.S.	broker-dealers	who sweep	 client	 cash	 to	 FDIC-insured	 deposits.	 We	 utilize	 deposits	 to	 finance activities	 in	 our	 bank	 subsidiaries.	The	 table	 below	 presents	 the	 sourcing	 of our	deposits.

|  | Type	of	Deposit |  |
| :--- | :--- | :--- |
| in\tmillions | \t\tSavings\tand\tDemand^\t1 | Time^\t2 |
| Private\tbank\tdeposits^\t3 | $30,460 | \t\t$\t\t\t\t\t\t\t— |
| Certificates\tof\tdeposit | — | 21,507 |
| Deposit\tsweep\tprograms | 15,998 | — |
| Institutional | 51 | 2,108 |
| Total^\t4 | $46,509 | \t\t$23,615 |

1.Represents	deposits	with	no	stated	maturity.

2.Weighted	average	maturity	in	excess	of	three	years.

3.Substantially	 all	 were	 from	 overnight	 deposit	 sweep	 programs related to	 private	 wealth management	clients. 4.Deposits	insured	by	the	FDIC	as	of	December	2012	were	approximately	$42.77	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	primarily	issue	commercial paper,	promissory	notes,	and	other	hybrid	instruments.

As	 of	 December	 2012,	 our	 unsecured	 short-term	 borrowings,	 including	 the current	 portion	 of	 unsecured	 long-term	 borrowings,	 were	 $44.30	 billion.	 See Note	 15	 to	 the	 consolidated	 financial	 statements	 in	 Part	 II,	 Item	 8	 of	 this 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.	Accordingly,	we	have	in	place	a	comprehensive	capital	management	policy that	serves	as	a	guide	to	determine	the	amount	and	composition	of	equity	capital we	maintain.

The	 level	 and	 composition	 of	 our	 equity	 capital	 are	 determined	 by	 multiple factors	 including	 our	 current	 and	 future	 consolidated	 regulatory	 capital requirements,	our	ICAAP,	CCAR	and	results	of	stress	tests,	and	may	also	be influenced	by	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.	 In	 addition,	 we	 maintain	 a	 capital	 plan	 which	 projects sources	 and	 uses	 of	 capital	 given	 a	 range	 of	 business	 environments,	 and	 a contingency	 capital	 plan	 which	 provides	 a	 framework	 for	 analyzing	 and responding	to	an	actual	or	perceived	capital	shortfall.

As	 part	 of	 the	 Federal	 Reserve	 Board's	 annual	 CCAR,	 U.S.	 bank	 holding companies	with	total	consolidated	assets	of	$50	billion	or	greater	are	required	to submit	 annual	 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	robust,	forward-looking	capital	planning	processes	that	account	for	their unique	risks	and	that	permit	continued	operations	during	times	of	economic	and financial	 stress.	 The	 Federal	 Reserve	 Board	 will	 evaluate	 a	 bank	 holding company	based	on	whether	it	has	the	capital	necessary	to	continue	operating under	the	baseline	and	stressed	scenarios	provided	by	the	Federal	Reserve.	As part	 of	 the	 capital	 plan	 review,	 the	 Federal	 Reserve	 Board	 evaluates	 an institution's	 plan	 to	 make	 capital	 distributions,	 such	 as	 increasing	 dividend payments	or	repurchasing	or	redeeming	stock,	across	a	range	of	macro-economic and	 firm-specific	 assumptions.	 In	 addition,	 the	 rules	 adopted	 by	 the	 Federal Reserve	Board	under	the	Dodd-Frank	Act,	require	us	to	conduct	stress	tests	on	a semi-annual	 basis	 and	 publish	 a	 summary	 of	 certain	 results,	 beginning	 in March	2013.	The	Federal	Reserve	Board	will	conduct	its	own	annual	stress	tests and	is	expected	to	publish	a	summary	of	certain	results	in	March	2013.

As	part	of	our	2012	CCAR	submission,	the	Federal	Reserve	informed	us	that	it did	not	object	to	our	proposed	capital	actions	through	the	first	quarter	of	2013, including	 the	 repurchase	 of	 outstanding	 common	 stock	 and	 increases	 in	 the quarterly	common	stock	dividend.	We	submitted	our	2013	CCAR	to	the	Federal Reserve	on	January	7,	2013	and	expect	to	publish	a	summary	of	our	results	in March	2013.

Our	consolidated	regulatory	capital	requirements	are	determined	by	the	Federal Reserve	Board,	as	described	below.	Our	ICAAP	incorporates	an	internal	risk- based	 capital	 assessment	 designed	 to	 identify	 and	 measure	 material	 risks associated	 with	 our	 business	 activities,	 including	 market	 risk,	 credit	 risk	 and operational	risk,	in	a	manner	that	is	closely	aligned	with	our	risk	management practices.	Our	internal	risk-based	capital	assessment	is	supplemented	with	the results	of	stress	tests.

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).	As	of	December	2011,	our	total	shareholders'	equity	was $70.38	billion	(consisting	of	common	shareholders'	equity	of	$67.28	billion	and preferred	 stock	 of $3.10 billion).	 In	 addition,	 as	 of	 December	 2012	 and December	 2011,	 $2.73	 billion	 and	 $5.00	 billion,	 respectively,	 of	 our	 junior subordinated	debt	issued	to	trusts	qualified	as	equity	capital	for	regulatory	and certain	rating	agency	purposes.	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 regulatory	 capital requirements that	 are	 computed in accordance	 with the	 Federal	 Reserve	 Board's	 risk-based	 capital	 requirements (which	 are	 based	 on the	 'Basel	 1'	 Capital	Accord	 of the	 Basel	 Committee). These	capital	requirements	are	expressed	as	capital	ratios	that	compare	measures of	 capital to risk-weighted	 assets (RWAs).	 See	 Note	 20 to the	 consolidated financial statements in Part II, Item 8 of this Form 10-K for additional information regarding the firm's	 RWAs.	 The firm's capital levels are also subject to qualitative judgments by its regulators about components, risk weightings	and	other	factors.

Federal	Reserve	Board	regulations	require	bank	holding	companies	to	maintain	a minimum	Tier	1	capital	ratio	of	4%	and	a	minimum	total	capital	ratio	of	8%. The	required	minimum	Tier	1	capital	ratio	and	total	capital	ratio	in	order	to	be considered a "well-capitalized" bank holding company under the Federal Reserve Board guidelines are 6% and 10%, respectively. Bank holding companies	may	be	expected	to	maintain	ratios	well	above	the	minimum	levels, depending	 on their	 particular	 condition, risk	 profile	 and	 growth	 plans.	 The minimum	Tier	 1 leverage	 ratio is	 3%	 for	 bank	 holding	 companies that	 have received	the	highest	supervisory	rating	under	Federal	Reserve	Board	guidelines or that have implemented the Federal	 Reserve	 Board's risk-based capital measure	for	market	risk.	Other	bank	holding	companies	must	have	a	minimum Tier	1	leverage	ratio	of	4%.

# Consolidated	Regulatory	Capital	Ratios

The	table	below	presents	information	about	our	regulatory	capital	ratios,	which are	based	on	Basel	1,	as	implemented	by	the	Federal	Reserve	Board.

|  | As	of	December |  |
| :--- | :--- | :--- |
| $\tin\tmillions | 2012 | 2011 |
| Common\tshareholders'\tequity | \t\t$\t\t69,516 | \t\t\t$\t\t67,279 |
| Less:\tGoodwill | (3,702) | (3,802) |
| Less:\tIntangible\tassets | (1,397) | (1,666) |
| Less:\tEquity\tinvestments\tin\tcertain\tentities^\t1 | (4,805) | (4,556) |
| Less:\tDisallowed\tdeferred\ttax\tassets | (1,261) | (1,073) |
| Less:\tDebt\tvaluation\tadjustment\t^2 | (180) | (664) |
| Less:\tOther\tadjustments^\t3 | (124) | (356) |
| Tier\t1\tCommon\tCapital | 58,047 | 55,162 |
| Non-cumulative\tpreferred\tstock | 6,200 | 3,100 |
| Junior\tsubordinated\tdebt\tissued\tto\ttrusts^\t4 | 2,730 | 5,000 |
| Tier\t1\tCapital | 66,977 | 63,262 |
| Qualifying\tsubordinated\tdebt^\t5 | 13,342 | 13,828 |
| Other\tadjustments | 87 | 53 |
| Tier\t2\tCapital | 13,429 | 13,881 |
| Total\tCapital | \t\t$\t\t80,406 | \t\t\t$\t\t77,143 |
| Risk-Weighted\tAssets | \t\t$399,928 | \t\t\t$457,027 |
| Tier\t1\tCapital\tRatio | 16.7% | 13.8% |
| Total\tCapital\tRatio | 20.1% | 16.9% |
| Tier\t1\tLeverage\tRatio^\t6 | 7.3% | 7.0% |
| Tier\t1\tCommon\tRatio^\t7 | 14.5% | 12.1% |

1.Primarily	represents	a	portion	of	our	equity	investments	in	non-financial	companies.

2.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).

3.Includes	 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.

4.See	Note	16	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this	Form	10-K	for additional	information	about	the	junior	subordinated	debt	issued	to	trusts.

5.Substantially	all	of	our	subordinated	debt	qualifies	as	Tier	2	capital	for	Basel	1	purposes.

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

7.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	and	investors use	to	assess	capital	adequacy	and,	while	not	currently	a	formal	regulatory	capital	ratio,	this measure	is	of	increasing	importance	to	regulators.	The	Tier	1	common	ratio	is	a	non-GAAP measure	 and	 may	 not	 be	 comparable	 to	 similar	 non-GAAP	 measures	 used	 by other	companies.

Our	Tier	1	capital	ratio	increased	to	16.7%	as	of	December	2012	from	13.8%	as of	 December	 2011	 primarily	 reflecting	 an	 increase	 in	 common	 shareholders' equity	and	a	reduction	in	market	RWAs.	The	reduction	in

market	RWAs	was	primarily	driven	by	lower	volatilities,	a	decrease	in	derivative exposure	and	capital	efficiency	initiatives	that,	while	driven	by	future	Basel	3 rules,	also	reduced	market	RWAs	as	measured	under	the	current	rules.

Changes	 to	 the	 market	 risk	 capital	 rules	 of	 the	 U.S.	 federal	 bank	 regulatory agencies	 became	 effective	 on	 January 1, 2013.	 These	 changes	 require	 the addition	of	several	new	model-based	capital	requirements,	as	well	as	an	increase in	capital	requirements	for	securitization	positions	and	are	designed	to	implement the	 new	 market	 risk	 framework	 of	 the	 Basel	 Committee,	 as	 well	 as	 the prohibition	on	the	use	of	external	credit	ratings,	as	required	by	the	Dodd-Frank Act.	This	revised	market	risk	framework	is	a	significant	part	of	the	regulatory capital	changes	that	will	ultimately	be	included	in	our	Basel	3	capital	ratios.	The firm's	estimated	Tier	1	common	ratio	under	Basel	1	reflecting	 these	revised market	 risk	 regulatory	 capital	 requirements	 would	 have	 been	 approximately 350	basis	points	lower	than	the	firm's	reported	Basel	1	Tier	1	common	ratio	as of	December	2012.

See	"Business	—	Regulation"	in	Part	I,	Item	1	of	this	Form	10-K	and	Note	20	to the	consolidated	financial	statements	in	Part	II,	Item	8	of	this	Form	10-K	for additional	 information	 about	 our	 regulatory	 capital	 ratios	 and	 the	 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	the	amount	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).

RWAs	 for	 market	 risk	 are	 comprised	 of	 modeled	 and	 non-modeled	 risk requirements.	 Modeled	 risk	 requirements	 are	 determined	 by	 reference	 to	 the firm's	 Value-at-Risk	 (VaR)	 model.	 VaR	 is	 the	 potential	 loss	 in	 value	 of inventory	 positions	 due	 to	 adverse	 market	 movements	 over	 a	 defined	 time horizon	with	a	specified	confidence	level.	We	use	a	single	VaR	model	which captures	 risks	 including	 interest	 rates,	 equity	 prices,	 currency	 rates	 and commodity	 prices.	 For	 certain	 portfolios	 of	 debt	 and	 equity	 positions,	 the modeled	RWAs	also	reflect	requirements	for	specific	risk,	which	is	the	risk	of loss	on	a	position	that	could	result	from	changes	in	risk	factors	unique	to	that position.	 Regulatory	VaR	 used	 for	 capital	 requirements	 will	 differ	 from	 risk management	VaR,	due	to	different	time	horizons	(10-day	vs.	1-day),	confidence levels	(99%	vs.	95%),	as	well	as	other	factors.	Non-modeled	risk	requirements reflect	 specific	 risk	 for	 other	 debt	 and	 equity	 positions.	 The	 standardized measurement	 method	 is	 used	 to	 determine	 non-modeled	 risk	 by	 applying supervisory	defined	risk-weighting	factors	to	positions	after	applicable	netting is	performed.

The	table	below	presents	information	on	the	components	of	RWAs	within	our consolidated	regulatory	capital	ratios.

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Credit\tRWAs |  |  |
| OTC\tderivatives | \t\t$107,269 | \t$119,848 |
| Commitments\tand\tguarantees^\t1 | 46,007 | 37,648 |
| Securities\tfinancing\ttransactions^\t2 | 47,069 | 53,236 |
| Other^\t3 | 87,181 | 84,039 |
| Total\tCredit\tRWAs | \t\t$287,526 | \t$294,771 |
| Market\tRWAs |  |  |
| Modeled\trequirements | \t\t$\t\t23,302 | \t$\t\t57,784 |
| Non-modeled\trequirements | 89,100 | 104,472 |
| Total\tMarket\tRWAs | 112,402 | 162,256 |
| Total\tRWAs^\t4 | \t\t$399,928 | \t$457,027 |

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,	other	assets,	cash	and	cash	equivalents	and available-for-sale	securities.

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

As	outlined	above,	changes	to	the	market	risk	capital	rules	that	became	effective on	January	1,	2013,	require	 the	addition	of	several	new	model-based	capital requirements,	 as	 well	 as	 an	 increase	 in	 capital	 requirements for securitization	positions.

# Internal	Capital	Adequacy	Assessment	Process

We	 perform	 an	 ICAAP	 with	 the	 objective	 of	 ensuring that the firm is appropriately	capitalized	relative	to	the	risks	in	our	business.

As	part	of	our	ICAAP,	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,	 the	 size	 of	 our losses	in	the	event	of	a	default	and	the	maturity	of	our	counterparties'	contractual obligations	to	us.	Operational	risk	is	calculated	based	on	scenarios	incorporating multiple	 types	 of	 operational	 failures.	 Backtesting	 is	 used	 to	 gauge	 the effectiveness	of	models	at	capturing	and	measuring	relevant	risks.

We	 evaluate	 capital	 adequacy	 based	 on	 the	 result	 of	 our	 internal	 risk-based capital	assessment,	supplemented	with	the	results	of	stress	tests	which	measure the	firm's	estimated	performance	under	various	market	conditions.	Our	goal	is	to hold	sufficient	capital,	under	our	internal	risk-based	capital	framework,	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.

We	attribute	capital	usage	to	each	of	our	businesses	based	upon	our	internal	risk- based	capital	and	regulatory	frameworks	and	manage	the	levels	of	usage	based upon	the	balance	sheet	and	risk	limits	established.

# 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.	and	GSI	have	been	assigned	long-	and	short- term	 issuer	ratings	by	certain	credit	rating	agencies.	GS	Bank	USA	has	also been	assigned	long-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&Co.,	GSI	and	GS	Bank	USA.

# 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	is	subject	to	minimum	capital	requirements	that	are	calculated	in a	manner	similar	to	those	applicable	to	bank	holding	companies	and	computes its	capital	ratios	in	accordance	with	the	regulatory	capital	requirements	currently applicable	to	state	member	banks,	which	are	based	on	Basel	1,	as	implemented by	the	Federal	Reserve	Board.	As	of	December	2012,	GS	Bank	USA's	Tier	1 Capital	ratio	under	Basel	1	as	implemented	by	the	Federal	Reserve	Board	was 18.9%.	See	Note	20	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of this	Form	10-K	for	further	information	about	GS	Bank	USA's	regulatory	capital ratios	under	Basel	1,	as	implemented	by	the	Federal	Reserve	Board.	Effective January	 1,	 2013,	 GS	 Bank	 USA	 also	 implemented	 the	 revised	 market	 risk framework	outlined	above.	This	revised	market	risk	framework	is	a	significant part	of	 the	regulatory	capital	changes	 that	will	ultimately	be	 included	 in	GS Bank	USA's	Basel	3	capital	ratios.

For	 purposes	 of	 assessing	 the	 adequacy	 of	 its	 capital,	 GS	 Bank	 USA	 has established	an	ICAAP	which	is	similar	to	that	used	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,	beginning	in	March	2013.	GS	Bank	USA	submitted	its	annual stress	results	to	the	Federal	Reserve	on	January	7,	2013	and	expects	to	publish	a summary	 of	 its	 results	 in	 March	 2013.	 GS	 Bank	 USA's	 capital	 levels	 and prompt	corrective	action	classification	are	subject	to	qualitative	judgments	by	its regulators	about	components,	risk	weightings	and	other	factors.

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	this 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	2012	and	December	2011,	Group	Inc.'s equity	 investment	 in	 subsidiaries	 was $73.32 billion	 and $67.70 billion, respectively,	compared	with	its	total	shareholders'	equity	of	$75.72	billion	and $70.38	billion,	respectively.

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.

# 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.

# Equity	Capital	Management

Our	objective	is	to	maintain	a	sufficient	level	and	optimal	composition	of	equity capital.	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	internal	risk-based	capital	and	regulatory frameworks	and	manage	the	levels	of	usage	based	upon	the	balance	sheet	and risk	limits	established.

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

Berkshire Hathaway	 Warrant.	In	 October 2008,	 we	 issued	 Berkshire Hathaway	a	warrant,	which	grants	Berkshire	Hathaway	the	option	to	purchase	up to	43.5	million	shares	of	common	stock	at	an	exercise	price	of	$115.00	per	share on	 or	 before	 October 1, 2013.	 See	 Note 19 to	 the	 consolidated	 financial statements	 in	 Part	 II,	 Item	 8	 of	 this	 Form	 10-K	 for	 information	 about	 the Series	G	Preferred	Stock.

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	 (i.e.,	 comparisons	 of	 our	 desired	 level	 and composition	of	capital	to	our	actual	level	and	composition	of	capital),	but	which may	also	be	influenced	by	general	market	conditions	and	the	prevailing	price	and trading	volumes	of	our	common	stock.

As	of	December	2012,	under	 the	share	repurchase	program	approved	by	 the Board	of	Directors	of	Group	Inc.	(Board),	we	can	repurchase	up	to	21.5	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	this	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 | As	of	December |
| :--- | :--- | :--- |
| in\tmillions,\texcept\tper\tshare\tamounts | 2012 | 2011 |
| Total\tshareholders'\tequity | \t\t$75,716\t\t\t\t\t\t\t$70,379 | \t\t$75,716\t\t\t\t\t\t\t$70,379 |
| Common\tshareholders'\tequity | 69,516 | 67,279 |
| Tangible\tcommon\tshareholders'\tequity | 64,417 | 61,811 |
| Book\tvalue\tper\tcommon\tshare | 144.67 | 130.31 |
| Tangible\tbook\tvalue\tper\tcommon\tshare | 134.06 | 119.72 |

# 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.

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	480.5	million	and	516.3	million	as	of	December	2012 and	 December	 2011,	 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.

# 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	 this	Form	10-K.	In addition,	see	Note	3	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of this	Form	10-K	for	a	discussion	of	our	consolidation	policies.

# Type	of	Off-Balance-Sheet	Arrangement

# Disclosure	in	Form	10-K

# 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,	 contractual interest payments and insurance agreements, 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	2012.

| in	millions | 2013 | 2014-2015 | 2016-2017 | Thereafter | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Amounts\trelated\tto\ton-balance-sheet\tobligations |  |  |  |  |  |
| Time\tdeposits\t^1 | \t$\t\t\t\t\t\t\t\t\t— | $\t\t\t\t7,151 | $\t\t4,064 | $\t\t5,069 | \t$\t\t16,284 |
| Secured\tlong-term\tfinancings\t^2 | — | 6,403 | 1,140 | 1,422 | 8,965 |
| Unsecured\tlong-term\tborrowings\t^3 | — | 43,920 | 42,601 | 80,784 | 167,305 |
| Contractual\tinterest\tpayments\t^4 | 7,489 | 13,518 | 10,182 | 33,332 | 64,521 |
| Insurance\tliabilities\t^5 | 477 | 959 | 934 | 13,740 | 16,110 |
| Subordinated\tliabilities\tissued\tby\tconsolidated\tVIEs | 59 | 62 | 84 | 1,155 | 1,360 |
| Amounts\trelated\tto\toff-balance-sheet\tarrangements |  |  |  |  |  |
| Commitments\tto\textend\tcredit | 10,435 | 16,322 | 43,453 | 5,412 | 75,622 |
| Contingent\tand\tforward\tstarting\tresale\tand\tsecurities\tborrowing\tagreements | 47,599 | — | — | — | 47,599 |
| Forward\tstarting\trepurchase\tand\tsecured\tlending\tagreements | 6,144 | — | — | — | 6,144 |
| Letters\tof\tcredit | 614 | 160 | — | 15 | 789 |
| Investment\tcommitments | 1,378 | 2,174 | 258 | 3,529 | 7,339 |
| Other\tcommitments | 4,471 | 53 | 31 | 69 | 4,624 |
| Minimum\trental\tpayments | 439 | 752 | 623 | 1,375 | 3,189 |
| Derivative\tguarantees | 339,460 | 213,012 | 49,413 | 61,264 | 663,149 |
| Securities\tlending\tindemnifications | 27,123 | — | — | — | 27,123 |
| Other\tfinancial\tguarantees | 904 | 442 | 1,195 | 938 | 3,479 |

1.Excludes	$7.33	billion	of	time	deposits	maturing	within	one	year.

2.The	aggregate	contractual	principal	amount	of	secured	 long-term	 financings	 for	which	 the	 fair	value	option	was	elected,	primarily	consisting	of transfers	of financial	assets	accounted for	as financings	rather	than	sales	and	certain	other	nonrecourse	financings,	exceeded	their	related	fair	value	by	$115	million.

3.Includes	$10.51	billion	related	to	interest	rate	hedges	on	certain	unsecured	long-term	borrowings.	In	addition,	the	fair	value	of	unsecured	long-term	borrowings	(principal	and	non-principal-protected) for	which	the	fair	value	option	was	elected	exceeded	the	related	aggregate	contractual	principal	amount	by	$379	million.	Excludes	$77	million	of	unsecured	long-term	borrowings	related	to	our reinsurance	business	classified	as	held	for	sale	as	of	December	2012.	See	Note	17	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this	Form	10-K	for	further	information.

4.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	2012. Includes	stated	coupons,	if	any,	on	structured	notes.

5.Represents	estimated	undiscounted	payments	related	to	future	benefits	and	unpaid	claims	arising	from	policies	associated	with	our	insurance	activities,	excluding	separate	accounts	and	estimated recoveries	under	reinsurance	contracts.	Excludes	$13.08	billion	of	insurance	liabilities	related	to	our	reinsurance	business	classified	as	held	for	sale	as	of	December	2012.	See	Note	17	to	the consolidated	financial	statements	in	Part	II,	Item	8	of	this	Form	10-K	for	further	information.

# 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	this	Form	10-K	for further	information	about	our	unrecognized	tax	benefits.

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

As	 of	 December	 2012,	 our	 unsecured	 long-term	 borrowings	 were $167.31	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	this	Form	10-K	for	further	information	about	our	unsecured long-term	borrowings.

As	of	December	2012,	our	future	minimum	rental	payments	net	of	minimum sublease	 rentals	 under	 noncancelable	 leases	 were	 $3.19	 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	this	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	the	year	ended	December	2012,	total	occupancy	expenses	for	space held	in	excess	of	our	current	requirements	were	not	material.	In	addition,	for	the year	ended	December	2012,	we	incurred	exit	costs	of	$17	million	related	to	our office	 space.	 We	 may	 incur	 exit	 costs	 (included	 in	 "Depreciation	 and amortization"	and	"Occupancy")	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.

# 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	Risk	Committee,	which	consists	of	all	of our	independent	directors.	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. The	 chief	 risk	 officer,	 as	 part	 of	 the	 review	 of	 the	 firmwide	 risk	 package, 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	internal	audit,	compliance,	controllers,	credit	risk management,	 human	 capital	 management,	 legal,	 market	 risk	 management, operations,	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.

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.

# Structure

Ultimate	oversight	of	risk	is	the	responsibility	of	the	firm's	Board.	The	Board oversees	risk	both	directly	and	through	its	Risk	Committee.	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.

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,	or	in the	case	of	Internal	Audit,	to	the	Audit	Committee	of	the	Board,	are	responsible for	day-to-day	oversight	or	monitoring	of	risk,	as	discussed	in	greater	detail	in the	following	sections.	Internal	Audit,	which	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.

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 the implementation of the recommendations	 of the	 Business	 Standards	 Committee.	 This	 committee	 has established	the	following	two	risk-related	committees	that	report	to	it:

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	firm's	international	general	counsel	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	control	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	our	Credit	Risk	Management	department	(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	 chaired	 by	 a	 managing	 director	 in	 Credit Risk	Management.

Ÿ	Firmwide	 Finance	 Committee.	 The	 Firmwide	 Finance	 Committee	 has oversight	of	firmwide	liquidity,	the	size	and	composition	of	our	balance	sheet and	capital	base,	and	our	credit	ratings.	This	committee	regularly	reviews	and discusses	our	liquidity,	balance	sheet,	funding	position	and	capitalization	in the	 context	 of	 current	 events,	 risks	 and	 exposures,	 and	 regulatory requirements.	This	committee	is	also	responsible	for	reviewing	and	approving 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.

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 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.

# Liquidity	Risk	Management

Liquidity	is	of	critical	importance	to	financial	institutions.	Most	of	the	recent 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	reverse	repurchase	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	2012	and	December	2011,	the	fair	value	of	the	securities	and certain	overnight	cash	deposits	included	in	our	GCE	totaled	$174.62	billion	and $171.58	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,	 a	 qualitative	 assessment	 of	 the	 condition	 of	 the	 financial markets	and	the	firm,	we	believe	our	liquidity	position	as	of	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.

|  | Year	Ended	December | Year	Ended	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| U.S.\tdollar-denominated | \t\t$125,111 | \t$125,668 |
| Non-U.S.\tdollar-denominated | 46,984 | 40,291 |
| Total | \t\t$172,095 | \t$165,959 |

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.

The	table	below	presents	the	fair	value	of	our	GCE	by	asset	class.

|  | Average	for	the<br>Year	Ended	December | Average	for	the<br>Year	Ended	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Overnight\tcash\tdeposits | \t\t$\t\t52,233 | \t$\t\t34,622 |
| U.S.\tgovernment\tobligations | 72,379 | 88,528 |
| U.S.\tfederal\tagency\tobligations,\tincluding\thighly\tliquid |  |  |
| U.S.\tfederal\tagency |  |  |
| mortgage-backed\tobligations | 2,313 | 5,018 |
| German,\tFrench,\tJapanese\tand\tUnited\tKingdom\ngovernment\tobligations | 45,170 | 37,791 |
| Total | \t\t$172,095 | \t$165,959 |

The	 GCE	 is	 held	 at	 Group	 Inc.	 and our	 major broker-dealer and bank subsidiaries,	as	presented	in	the	table	below.

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	our	major	broker-dealer and	 bank	 subsidiaries.	 The	 Modeled	 Liquidity	 Outflow	 incorporates	 a consolidated	requirement	as	well	as	a	standalone	requirement	for	each	of	our major	broker-dealer	and	bank	subsidiaries.	Liquidity	held	directly	 in	each	of these	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. We	hold	a	portion	of	our	GCE	directly	at	Group	Inc.	to	support	consolidated requirements	not	accounted	for	in	the	major	subsidiaries.	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	$87.09	billion	and	$83.32	billion	for	the	years	ended	December	2012 and	December	2011,	respectively.	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.

Modeled	Liquidity	Outflow.	Our	Modeled	Liquidity	Outflow	is	based	on	a scenario that includes	 both	 a	 market-wide stress	 and	 a firm-specific stress, 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	Maintenance of our normal business levels.	 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	rollover	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:	A	decline 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.

Ÿ	Contingent:	Other	outflows	of	cash	or	collateral	related	to	OTC	derivatives, including	the	impact	of	trade	terminations,	collateral	substitutions,	collateral disputes,	 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.

# Exchange-Traded	Derivatives

Ÿ	Contingent:	Variation	margin	postings	required	due	to	adverse	changes	in	the value	of	our	outstanding	exchange-traded	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	 benefits	 of	 this approach	to	subsidiary	funding	are	enhanced	control	and	greater	flexibility	to meet	the	funding	requirements	of	our	subsidiaries.	Funding	is	also	raised	at	the subsidiary	 level	 through	 a	 variety	 of	 products,	 including	 secured	 funding, unsecured	borrowings	and	deposits.

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	2012,	Group	Inc.	had	$29.52	billion	of	equity	and	subordinated indebtedness	 invested	 in	 GS&Co.,	 its	 principal	 U.S.	 registered	 broker-dealer; $29.45	 billion invested	 in	 GSI,	 a	 regulated	 U.K.	 broker-dealer;	 $2.62	 billion invested	 in	 GSEC,	 a	 U.S.	 registered	 broker-dealer;	 $3.78	 billion	 invested	 in Goldman	 Sachs	 Japan	 Co.,	 Ltd.,	 a	 regulated	 Japanese	 broker-dealer;	 and $20.67	billion	invested	in	GS	Bank	USA,	a	regulated	New	York	State-chartered bank.	 Group	 Inc.	 also	 provided,	 directly	 or	 indirectly, $68.44 billion	 of unsubordinated	 loans	 and $11.37 billion	 of	 collateral	 to	 these	 entities, substantially	 all	 of	 which	 was	 to	 GS&Co.,	 GSI	 and	 GS	 Bank	 USA,	 as	 of December	2012.	In	addition,	as	of	December	2012,	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	 pre-funding	 for	 what	 we	 estimate	 will	 be	 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	the	banking	entity	maintains	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	 banking	 entities	 over	 a	 one-year	 time	 horizon.	 While	 the principles	behind	 the	new	framework	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. 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.

# Credit	Ratings

The	table	below	presents	the	unsecured	credit	ratings	and	outlook	of	Group	Inc.

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.

4.The	ratings	outlook	for	trust	preferred	and	preferred	stock	is	stable.

The	table	below	presents	the	unsecured	credit	ratings	of	GS	Bank	USA,	GS&Co.	and	GSI.

On	January	24,	2013,	Fitch,	Inc.	assigned	GSI	a	rating	of	F1	for	short-term	debt and	A	for	long-term	debt.

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 this	 Form	 10-K for	 a	 discussion	 of the risks	 associated	 with	 a reduction	in	our	credit	ratings.

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	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.

# 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	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.

Year	Ended	December	2010.	Our	cash	and	cash	equivalents	increased	by $1.50	billion	to	$39.79	billion	at	the	end	of	2010.	We	generated	$7.84	billion	in net	cash	from	financing	activities	primarily	from	net	proceeds	from	issuances	of short-term	secured	financings.	We	used	net	cash	of	$6.34	billion	for	operating and	 investing	activities,	primarily	 to	fund	an	 increase	 in	securities	purchased under	agreements	to	resell	and	an	increase	in	cash	and	securities	segregated	for regulatory	and	other	purposes,	partially	offset	by	cash	generated	from	a	decrease in	securities	borrowed.

# Market	Risk	Management

Market	risk	is	the	risk	of	loss	in	the	value	of	our	inventory	due	to	changes	in market	prices.	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	electricity,	natural	gas, crude	oil,	petroleum	products,	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.	Risk	measures	used	for	shorter-term	periods	 include	VaR	and sensitivity	 metrics.	 For	 longer-term	 horizons,	 our	 primary	 risk	 measures	 are 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.

# 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.

# Value-at-Risk

VaR	is	the	potential	loss	in	value	of	inventory	positions	due	to	adverse	market movements	over	a	defined	time	horizon	with	a	specified	confidence	level.	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.

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	inventory	positions 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.

# Model	Review	and	Validation

Our	VaR	model	is	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	 model	 is	 regularly	 reviewed	 and	 enhanced	 in	 order	 to	 incorporate changes	in	the	composition	of	inventory	positions,	as	well	as	variations	in	market conditions.	Prior	to	implementing	significant	changes	to	our	assumptions	and/or model,	we	perform	model	validation	and	test	runs.	Significant	changes	to	our VaR	model	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.

# Stress	Testing

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	the	ICAAP	process;	however,	we	also	ensure that	firmwide	stress	testing	is	integrated	into	our	risk	governance	framework. This	includes	selecting	appropriate	scenarios	to	use	for	the	ICAAP	process.	See "Equity	Capital	—	Internal	Capital	Adequacy	Assessment	Process"	above	for further	information	about	our	ICAAP	process.

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.

# 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 | Year	Ended	December | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| Risk\tCategories | \t\t2012 | \t2011\t\t\t\t\t\t\t2010 | \t2011\t\t\t\t\t\t\t2010 |
| Interest\trates | \t\t $\t78 | \t$\t\t94\t\t\t\t\t\t\t$\t\t93 | \t$\t\t94\t\t\t\t\t\t\t$\t\t93 |
| Equity\tprices | 26 | 33 | 68 |
| Currency\trates | 14 | 20 | 32 |
| Commodity\tprices | 22 | 32 | 33 |
| Diversification\teffect | (54) | (66) | (92) |
| Total | \t\t $\t86 | \t$113\t\t\t\t\t\t\t$134 | \t$113\t\t\t\t\t\t\t$134 |

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.

Our	average	daily	VaR	decreased	to	$113	million	in	2011	from	$134	million	in 2010,	 primarily	 reflecting	 decreases	 in	 the	 equity	 prices	 and	 currency	 rates categories,	principally	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

|  |  |  | Year	Ended |  |
| :--- | :--- | :--- | :--- | :--- |
| in\tmillions | As\tof\tDecember | As\tof\tDecember | December\t2012 |  |
| Risk\tCategories | \t\t 2012 | \t 2011 | \t\t High | Low |
| Interest\trates | $\t64 | \t $100 | \t\t $103 | $61 |
| Equity\tprices | 22 | 31 | 92 | 14 |
| Currency\trates | 9 | 14 | 22 | 9 |
| Commodity\tprices | 18 | 23 | 32 | 15 |
| Diversification\teffect | (42) | (69) |  |  |
| Total | $\t71 | \t $\t\t99 | \t\t $122 | $67 |

Our	daily	VaR	decreased	to	$71	million	as	of	December	2012	from	$99	million as	of	December	2011,	primarily	reflecting	decreases	 in	 the	 interest	rates	and equity	prices	categories	due	to	lower	levels	of	volatility.	These	decreases	were partially	offset	by	a	decrease	in	the	diversification	benefit	across	risk	categories.

During	the	year	ended	December	2012,	the	firmwide	VaR	risk	limit	was	not exceeded	and	was	reduced	on	one	occasion	due	to	lower	levels	of	volatility.

During	 the	 year	 ended	 December	 2011,	 the	 firmwide	 VaR	 risk	 limit	 was exceeded	 on	 one	 occasion.	 It	 was	 resolved	 by	 a	 temporary	 increase	 in	 the firmwide	VaR	risk	limit,	which	was	subsequently	made	permanent	due	to	higher levels	of	volatility.	The	firmwide	VaR	risk	limit	had	previously	been	reduced	on one	 occasion	 in	 2011,	 reflecting	 lower	 risk	 utilization	 and	 the	 market environment.

The	chart	below	reflects	the	VaR	over	the	last	four	quarters.

The	 chart	 below	 presents the frequency	 distribution	 of	 our	 daily trading	 net revenues	for	substantially	all	inventory

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 2012.	 Trading losses incurred on a single day exceeded	 our	 95%	 one-day	 VaR (i.e.,	 a	 VaR	 exception)	 on three	 occasions during	2011.

During	periods	in	which	the	firm	has	significantly	more	positive	net	revenue days	than	net	revenue	loss	days,	we

positions	included	in	VaR	for	the	year	ended	December	2012.

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.

# Sensitivity	Measures

Certain	portfolios	and	individual	positions	are	not	included	in	VaR	because	VaR is	not	the	most	appropriate	risk	measure.	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.

The	table	below	presents	market	risk	for	positions	that	are	not	included	in	VaR. These	measures	do	not	reflect	diversification	benefits	across	asset	categories	and therefore	have	not	been	aggregated.

| in	millions | 2012 | 2011 |
| :--- | :--- | :--- |
| ICBC | $\t\t\t208 | $\t\t\t212 |
| Equity\t(excluding\tICBC)\t^1 | 2,263 | 2,458 |
| Debt\t^2 | 1,676 | 1,521 |

1.Relates	to	private	and	restricted	public	equity	securities,	including	interests	in	firm-sponsored funds	that	invest	in	corporate	equities	and	real	estate	and	interests	in	firm-sponsored	hedge funds.

2.Primarily	relates	to	interests	in	our	firm-sponsored	funds	that	invest	in	corporate	mezzanine and	senior	debt	instruments.	Also	includes	loans	backed	by	commercial	and	residential	real estate,	 corporate	 bank	 loans	 and	 other	 corporate	 debt,	 including	 acquired	 portfolios	 of distressed	loans.

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	$3	million	gain	(including	hedges)	as	of	December	2012.	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	$7	million	gain	(including	hedges)	as	of	December	2012.	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.

The	 firm	 engages	 in	 insurance	 activities	 where	 we	 reinsure	 and	 purchase portfolios	 of	 insurance	 risk	 and	 pension	 liabilities.	The	 risks	 associated	 with these	 activities	 include,	 but	 are	 not	 limited	 to:	 equity	 price,	 interest	 rate, reinvestment	 and	 mortality	 risk.	 The	 firm	 mitigates	 risks	 associated	 with insurance	activities	through	the	use	of	reinsurance	and	hedging.	Certain	of	the assets	associated	with	 the	firm's	 insurance	activities	are	 included	 in	VaR.	In addition	to	the	positions	included	in	VaR,	we	held	$9.07	billion	of	securities accounted	 for	 as	 available-for-sale	 as	 of	 December	 2012,	 which	 support	 the firm's

reinsurance	 business.	As	 of	 December	 2012,	 our	 available-for-sale	 securities primarily	consisted	of	$3.63	billion	of	corporate	debt	securities	with	an	average yield	of	4%,	the	majority	of	which	will	mature	after	five	years,	$3.38	billion	of mortgage	and	other	asset-backed	loans	and	securities	with	an	average	yield	of 6%,	the	majority	of	which	will	mature	after	ten	years,	and	$856	million	of	U.S. government	and	federal	agency	obligations	with	an	average	yield	of	3%,	 the majority	of	which	will	mature	after	five	years.	As	of	December	2012,	such	assets were	classified	as	held	for	sale	and	were	included	in	"Other	assets."	See	Note	12 to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this	Form	10-K	for further	information	about	assets	held	for	sale.	As	of	December	2011,	we	held $4.86 billion	 of	 securities	 accounted	 for	 as	 available-for-sale,	 primarily consisting	of	$1.81	billion	of	corporate	debt	securities	with	an	average	yield	of 5%,	the	majority	of	which	will	mature	after	five	years,	$1.42	billion	of	mortgage and	other	asset-backed	loans	and	securities	with	an	average	yield	of	10%,	the majority	 of	 which	 will	 mature	 after	 ten	 years,	 and $662	 million of	 U.S. government	and	federal	agency	obligations	with	an	average	yield	of	3%,	 the majority	of	which	will	mature	after	ten	years.

In	addition,	as	of	December	2012	and	December	2011,	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	this	Form	10-K	for	further	information	about	such lending	commitments.	As	of	December	2012,	the	firm	also	had	$6.50	billion	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.	The	estimated	sensitivity	to	a	100	basis	point increase	in	interest	rates	on	such	loans	was	$62	million	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	this	Form	10-K	for	further	information about	loans	held	for	investment.

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	this	Form	10-K	for	information	on	"Other	assets."

# Credit	Risk	Management

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.

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.

# 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.

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

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.	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.

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 credit	 support	 agreements.	 Receivable	 and	 payable	 balances	 with	 the	 same counterparty	in	the	same	tenor	category	are	netted	within	such	tenor	category. The	 categories	 shown	 reflect	 our	 internally	 determined	 public	 rating agency	equivalents.

Derivatives	are	accounted	for	at	fair	value,	net	of	cash	collateral	received	or posted	under	credit	support	agreements.	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	this	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.

|  |  |  |  |  |  |  | Exposure |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| in\tmillions | 0\t-\t12 | 1\t-\t5 | 5\tYears |  |  |  | Net\tof |
| Credit\tRating\tEquivalent | Months | Years | or\tGreater | Total | Netting | \tExposure | Collateral |
| AAA/Aaa | \t$\t\t\t\t\t494 | \t$\t\t1,934 | $\t\t\t\t2,778 | \t$\t\t\t\t5,206 | \t$\t\t\t\t(1,476) | $\t\t3,730 | $\t\t3,443 |
| 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\tor\tlower | 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 | \t$28,394 | \t$54,829 | $101,642 | \t$184,865 | \t$(117,461) | $67,404 | $40,616 |
|  |  |  |  | As\tof\tDecember\t2011 | As\tof\tDecember\t2011 |  |  |
|  |  |  |  |  |  |  | Exposure |
| in\tmillions | 0\t-\t12 | 1\t-\t5 | 5\tYears |  |  |  | Net\tof |

| Credit	Rating	Equivalent | Months | Years | or	Greater | Total | Netting | Exposure | Collateral |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| AAA/Aaa | \t$\t\t\t\t\t727 | \t$\t\t\t\t\t786 | $\t\t\t\t2,297 | \t$\t\t\t\t3,810 | \t$\t\t\t\t\t\t\t(729) | $\t\t3,081 | $\t\t2,770 |
| AA/Aa2 | 4,661 | 10,198 | 28,094 | 42,953 | (22,972) | 19,981 | 12,954 |
| A/A2 | 17,704 | 36,553 | 50,787 | 105,044 | (73,873) | 31,171 | 17,109 |
| BBB/Baa2 | 7,376 | 14,222 | 25,612 | 47,210 | (36,214) | 10,996 | 6,895 |
| BB/Ba2\tor\tlower | 2,896 | 4,497 | 6,597 | 13,990 | (6,729) | 7,261 | 4,527 |
| Unrated | 752 | 664 | 391 | 1,807 | (149) | 1,658 | 1,064 |
| Total | \t$34,116 | \t$66,920 | $113,778 | \t$214,814 | \t$(140,666) | $74,148 | $45,319 |

Lending	 Activities.	 We	 manage the	 firm's	 traditional	 credit	 origination activities,	including	funded	loans	and	lending	commitments	(both	fair	value	and held	 for	 investment	 loans	 and	 lending	 commitments),	 using	 the	 credit	 risk process,	measures	and	limits	described	above.	Other	lending	positions,	including secondary	trading	positions,	are	risk-managed	as	a	component	of	market	risk.

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	 margin	 placed	 with	 clearing	 organizations	 and receivables	related	to	sales	of	securities	which	have	traded,	but	not	yet	settled. These	receivables	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	have	minimal	credit	risk	due	to	both	the	value	of	the	collateral received	and	the	short-term	nature	of	these	receivables.

As of	 December 2012, our credit exposures increased as compared	 with December 2011, reflecting an increase in cash and loans and lending commitments,	partially	offset	by	a	decrease	in	OTC	derivative	exposures.	The percentage of our credit exposure arising from non-investment-grade counterparties (based on our internally determined public rating agency equivalents)	increased	from	December	2011	reflecting	an	increase	in	loans	and lending	commitments.	Counterparty	defaults	rose	slightly	during	the	year	ended December 2012; however, the estimated losses associated with these counterparty	defaults	were	lower	as	compared	with	the	prior	year.

The tables	 below	 present the firm's	 credit	 exposures related to	 cash,	 OTC derivatives, and loans and lending commitments associated	 with traditional credit origination activities broken down by industry, region and internal credit	rating.

# Credit	Exposure	by	Industry

|  | Cash | Cash | OTC	Derivatives | OTC	Derivatives | Commitments	^1 | Commitments	^1 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember |
| in\tmillions | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 |
| Asset\tManagers\t&amp;\tFunds | \t$\t\t\t\t\t\t\t— | \t$\t\t\t\t\t\t\t64 | \t$10,552 | \t$10,582 | \t$\t\t1,673 | \t$\t\t1,290 |
| Banks,\tBrokers\t&amp;\tOther\tFinancial\tInstitutions | 10,507 | 12,535 | 21,310 | 25,041 | 6,192 | 3,591 |
| Consumer\tProducts,\tNon-Durables\t&amp;\tRetail | — | 11 | 1,516 | 1,031 | 13,304 | 12,685 |
| Government\t&amp;\tCentral\tBanks | 62,162 | 43,389 | 14,729 | 16,642 | 1,782 | 1,828 |
| Healthcare\t&amp;\tEducation | — | — | 3,764 | 2,962 | 7,717 | 7,158 |
| Insurance | — | — | 4,214 | 2,828 | 3,199 | 2,891 |
| Natural\tResources\t&amp;\tUtilities | — | — | 4,383 | 4,803 | 16,360 | 14,795 |
| Real\tEstate | — | — | 381 | 327 | 3,796 | 2,695 |
| Technology,\tMedia,\tTelecommunications\t&amp;\tServices | — | 2 | 2,016 | 2,124 | 17,674 | 12,646 |
| Transportation | — | — | 1,207 | 1,104 | 6,557 | 5,753 |
| Other | — | 7 | 3,332 | 6,704 | 4,650 | 5,759 |
| Total\t^2 | \t$72,669 | \t$56,008 | \t$67,404 | \t$74,148 | \t$82,904 | \t$71,091 |

# Credit	Exposure	by	Region

|  | Cash | Cash | OTC	Derivatives | OTC	Derivatives | Loans	and	Lending<br>Commitments	^1 | Loans	and	Lending<br>Commitments	^1 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember |
| in\tmillions | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 |
| Americas | \t$65,193 | \t$48,543 | \t$32,968 | \t$36,591 | \t$59,792 | \t$52,755 |
| EMEA\t^3 | 1,683 | 1,800 | 26,739 | 29,549 | 21,104 | 16,989 |
| Asia | 5,793 | 5,665 | 7,697 | 8,008 | 2,008 | 1,347 |
| Total\t^2 | \t$72,669 | \t$56,008 | \t$67,404 | \t$74,148 | \t$82,904 | \t$71,091 |

# Credit	Exposure	by	Credit	Quality

|  | Cash | Cash | OTC	Derivatives | OTC	Derivatives | Loans	and	Lending<br>Commitments	^1 | Loans	and	Lending<br>Commitments	^1 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| in\tmillions | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember | As\tof\tDecember |
| Credit\tRating\tEquivalent | 2012 | 2011 | 2012 | 2011 | 2012 | 2011 |
| AAA/Aaa | \t$59,825 | \t$40,559 | \t$\t\t3,730 | \t$\t\t3,081 | \t$\t\t2,179 | \t$\t\t2,192 |
| AA/Aa2 | 6,356 | 7,463 | 16,445 | 19,981 | 7,220 | 7,026 |
| A/A2 | 5,068 | 6,464 | 24,901 | 31,171 | 21,901 | 21,055 |
| BBB/Baa2 | 326 | 195 | 13,919 | 10,996 | 26,313 | 22,937 |
| BB/Ba2\tor\tlower | 1,094 | 1,209 | 6,811 | 7,261 | 25,291 | 17,820 |
| Unrated | — | 118 | 1,598 | 1,658 | — | 61 |
| Total\t^2 | \t$72,669 | \t$56,008 | \t$67,404 | \t$74,148 | \t$82,904 | \t$71,091 |

1.Includes	approximately	$12	billion	and	$10	billion	of	loans	as	of	December	2012	and	December	2011,	respectively,	and	approximately	$71	billion	and	$61	billion	of	lending	commitments	as	of December	2012	and	December	2011,	respectively.	Excludes	certain	bank	loans	and	bridge	loans	and	certain	lending	commitments	that	are	risk	managed	as	part	of	market	risk	using	VaR	and sensitivity	measures.

2.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.	We	had	approximately	$37	billion	and	$41	billion	as	of	December	2012	and	December	2011,	respectively,	in	credit exposure	related	to	securities	financing	transactions	reflecting	applicable	netting	agreements	and	collateral.

3.EMEA	(Europe,	Middle	East	and	Africa).

# Selected	Country	Exposures

During	2011	and	throughout	2012,	there	have	been	concerns	about	European sovereign	 debt	 risk	 and	 its	 impact	 on	 the	 European	 banking	 system	 and	 a number	of	European	member	states	have	been	experiencing	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.

|  |  |  |  |  |  | Funded | Unfunded | Total |  | Equities |  | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | OTC |  | Gross |  | Credit | Credit | Credit |  | and | Credit | Market |
| in\tmillions | \t Loans | Derivatives | Other | \t\tFunded | \tHedges | Exposure | Exposure | \t\tExposure | Debt | Other | Derivatives | Exposure |
| Greece\nSovereign | \t$\t\t\t\t\t\t— | $\t\t\t\t\t\t— | $\t\t\t— | $\t\t\t\t\t\t— | \t$\t\t\t\t\t\t\t— | $\t\t\t\t\t\t— | $\t\t\t\t\t\t— | $\t\t\t\t\t\t— | \t$\t\t\t\t\t30 | $\t\t\t— | $\t\t\t\t\t\t\t— | $\t\t\t\t\t\t30 |
| Non-Sovereign | — | 5 | 1 | 6 | — | 6 | — | 6 | 65 | 15 | (5) | 75 |
| Total\tGreece | — | 5 | 1 | 6 | — | 6 | — | 6 | 95 | 15 | (5) | 105 |
| Ireland\nSovereign | — | 1 | 103 | 104 | — | 104 | — | 104 | 8 | — | (150) | (142) |
| Non-Sovereign | — | 126 | 36 | 162 | — | 162 | — | 162 | 801 | 74 | 155 | 1,030 |
| Total\tIreland | — | 127 | 139 | 266 | — | 266 | — | 266 | 809 | 74 | 5 | 888 |
| Italy\nSovereign | — | 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\tItaly | 43 | 2,316 | 130 | 2,489 | (1,747) | 742 | 587 | 1,329 | 19 | 65 | (1,599) | (1,515) |
| Portugal\nSovereign | — | 141 | 61 | 202 | — | 202 | — | 202 | 155 | — | (226) | (71) |
| Non-Sovereign | — | 44 | 2 | 46 | — | 46 | — | 46 | 168 | (6) | (133) | 29 |
| Total\tPortugal | — | 185 | 63 | 248 | — | 248 | — | 248 | 323 | (6) | (359) | (42) |
| Spain\nSovereign | — | 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\tSpain | 1,048 | 334 | 23 | 1,405 | (95) | 1,310 | 733 | 2,043 | 2,254 | 83 | (454) | 1,883 |
| Subtotal | \t$1,091^\t1 | $2,967^\t2 | $356 | $4,414 | \t $(1,842)^\t3 | $2,572 | $1,320 | $3,892 | \t$3,500 | $231 | $(2,412)^\t3 | $\t1,319 |
| 1.Principally\tconsists\tof\tcollateralized\tloans. |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | 107 |

1.Principally	consists	of	collateralized	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.

|  |  |  |  |  |  | Funded | Unfunded | Total |  | Equities |  | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | OTC |  | Gross |  | Credit | Credit | Credit |  | and | Credit | Market |
| in\tmillions | \tLoans | Derivatives | \tOther | Funded | \tHedges | Exposure | Exposure | Exposure | Debt | Other | Derivatives | Exposure |
| Greece |  |  |  |  |  |  |  |  |  |  |  |  |
| Sovereign | \t $\t\t\t— | $\t\t\t\t\t\t— | \t$\t\t\t—\t\t\t \t $\t\t\t\t\t\t—\t\t\t \t$\t\t\t\t\t\t\t— | \t$\t\t\t—\t\t\t \t $\t\t\t\t\t\t—\t\t\t \t$\t\t\t\t\t\t\t— | \t$\t\t\t—\t\t\t \t $\t\t\t\t\t\t—\t\t\t \t$\t\t\t\t\t\t\t— | $\t\t\t\t\t\t— | $\t\t— | $\t\t\t\t\t\t— | \t$\t\t\t329 | $\t\t\t— | $\t\t\t\t\t(22) | $\t307 |
| Non-Sovereign | 20 | 53 | — | 73 | — | 73 | — | 73 | 32 | 11 | 18 | 61 |
| Total\tGreece | 20 | 53 | — | 73 | — | 73 | — | 73 | 361 | 11 | (4) | 368 |
| Ireland\nSovereign | — | 1 | 256 | 257 | — | 257 | — | 257 | 411 | — | (352) | 59 |
| Non-Sovereign | — | 542 | 66 | 608 | (8) | 600 | 57 | 657 | 412 | 85 | 115 | 612 |
| Total\tIreland | — | 543 | 322 | 865 | (8) | 857 | 57 | 914 | 823 | 85 | (237) | 671 |
| Italy\nSovereign | — | 1,666 | 3 | 1,669 | (1,410) | 259 | — | 259 | 210 | — | 200 | 410 |
| Non-Sovereign | 126 | 457 | — | 583 | (25) | 558 | 408 | 966 | 190 | 297 | (896) | (409) |
| Total\tItaly | 126 | 2,123 | 3 | 2,252 | (1,435) | 817 | 408 | 1,225 | 400 | 297 | (696) | 1 |
| Portugal\nSovereign | — | 151 | — | 151 | — | 151 | — | 151 | (98) | — | 23 | (75) |
| Non-Sovereign | — | 53 | 2 | 55 | — | 55 | — | 55 | 230 | 13 | (179) | 64 |
| Total\tPortugal | — | 204 | 2 | 206 | — | 206 | — | 206 | 132 | 13 | (156) | (11) |
| Spain\nSovereign | — | 88 | — | 88 | — | 88 | — | 88 | 151 | — | (550) | (399) |
| Non-Sovereign | 153 | 254 | 11 | 418 | (141) | 277 | 146 | 423 | 345 | 239 | (629) | (45) |
| Total\tSpain | 153 | 342 | 11 | 506 | (141) | 365 | 146 | 511 | 496 | 239 | (1,179) | (444) |
| Subtotal | $299 | $3,265^\t1 | \t $338 | \t $3,902 | \t$(1,584) | $2,318 | $611 | $2,929 | \t$2,212 | $645 | $(2,272)^\t2 | $\t585 |

1.Includes	the	benefit	of	$6.5	billion	of	cash	and	U.S.	Treasury	securities	collateral	and	excludes	non-U.S.	government	and	agency	obligations	and	corporate	securities	collateral	of	$341	million. 2.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	or	U.S. Treasury	securities.	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 $179.4	 billion and	 $168.6	 billion,	 respectively,	 as	 of	 December	 2012,	 and $177.8	billion	and	$167.3	billion,	respectively,	as	of	December	2011.	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	$26.0	billion	and	$15.3	billion,	respectively,	as	of	December	2012,	and $28.2	 billion and	 $17.7	 billion,	 respectively,	 as	 of	 December	 2011.	 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	 2012	 and	 December	 2011,	 $4.8	 billion	 and	 $7.0	 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	this	Form	10-K.

We	conduct	stress	tests	intended	to	estimate	the	direct	and	indirect	impact	that might	result	from	a	variety	of	possible	events	 involving	 the	above	countries, 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 estimate	 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	vary	based	on the	scenario	reflected	in	each	stress	test.	We	also	estimate	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 review	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	include	analysis	of	the	impacts	on	exposure	that	might result	 from	 the	 redenomination	 of	 assets	 in	 the	 exiting	 country	 or	 countries. 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.	In	order	to	prepare	for any	 market	 disruption	 that	 might	 result	 from	 a	 Euro	 area	 exit,	 we	 test	 our operational	 and	 risk	 management	 readiness	 and	 capability	 to	 respond	 to	 a redenomination	event.

See	"Liquidity	Risk	Management	—	Modeled	Liquidity	Outflow,"	"Market	Risk Management	 —	 Stress	 Testing"	 and	 "Credit	 Risk	 Management	 —	 Stress Tests/Scenario	Analysis"	for	further	discussion.

# Operational	Risk	Management

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.

The	firm	maintains	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.	 Our Operational	Risk	Management	department	(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	 have	 instituted	 extensive	 policies	 and	 procedures	 and implemented	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	2	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	a	review	of	our	operational	risk	framework,	including our	key	controls,	processes	and	applications,	on	an	annual	basis	to	assess	the effectiveness	of	our	framework.

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	the	firm's	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	 the	 firm's	 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	 the	 firm's	 businesses.	 Operational risk measurement	 incorporates	 qualitative	 and	 quantitative	 assessments of factors	including:

Ÿ	internal	and	external	operational	risk	event	data;

Ÿ	assessments	of	the	firm's	internal	controls;

Ÿ	evaluations	of	the	complexity	of	the	firm's	business	activities;

Ÿ	the	degree	of	and	potential	for	automation	in	the	firm's	processes; Ÿ	new	product	information;

Ÿ	the	legal	and	regulatory	environment;

Ÿ	changes	 in	 the	 markets	 for	 the	 firm's	 products	 and	 services, including the diversity	and	sophistication	of	the	firm's	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.

We	 evaluate	 changes	 in	 the	 operational	 risk	 profile	 of	 the	 firm	 and	 its businesses,	including	changes	in	business	mix	or	jurisdictions	in	which	the	firm operates,	by	monitoring	the	factors	noted	above	at	a	firmwide	level.	The	firm has	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.

# Recent	Accounting	Developments

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

# 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	this	Form	10-K.

# 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	this	Form	10-K.

# Item	8.				Financial	Statements	and	Supplementary	Data

|  | Page	No. |
| :--- | :--- |
| Management's\tReport\ton\tInternal\tControl\tover\tFinancial\tReporting | 115 |
| Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 116 |
| Consolidated\tFinancial\tStatements | 117 |
| Consolidated\tStatements\tof\tEarnings | 117 |
| Consolidated\tStatements\tof\tComprehensive\tIncome | 118 |
| Consolidated\tStatements\tof\tFinancial\tCondition | 119 |
| Consolidated\tStatements\tof\tChanges\tin\tShareholders'\tEquity | 120 |
| Consolidated\tStatements\tof\tCash\tFlows | 121 |
| Notes\tto\tConsolidated\tFinancial\tStatements | 122 |
| Note\t1.\t\t\t\t\t\t\tDescription\tof\tBusiness | 122 |
| Note\t2.\t\t\t\t\t\t\tBasis\tof\tPresentation | 122 |
| Note\t3.\t\t\t\t\t\t\tSignificant\tAccounting\tPolicies | 123 |
| Note\t4.\t\t\t\t\t\t\t\tFinancial\tInstruments\tOwned,\tat\tFair\tValue\tand\tFinancial\tInstruments\tSold,\tBut\tNot\tYet\tPurchased,\tat\tFair\tValue | 127 |
| Note\t5.\t\t\t\t\t\t\tFair\tValue\tMeasurements | 128 |
| Note\t6.\t\t\t\t\t\t\tCash\tInstruments | 130 |
| Note\t7.\t\t\t\t\t\t\tDerivatives\tand\tHedging\tActivities | 138 |
| Note\t8.\t\t\t\t\t\t\tFair\tValue\tOption | 153 |
| Note\t9.\t\t\t\t\t\t\tCollateralized\tAgreements\tand\tFinancings | 162 |
| Note\t10.\t\t\t\t\tSecuritization\tActivities | 165 |
| Note\t11.\t\t\t\t\tVariable\tInterest\tEntities | 168 |
| Note\t12.\t\t\t\t\tOther\tAssets | 173 |
| Note\t13.\t\t\t\t\tGoodwill\tand\tIdentifiable\tIntangible\tAssets | 175 |
| Note\t14.\t\t\t\t\tDeposits | 177 |
| Note\t15.\t\t\t\t\tShort-Term\tBorrowings | 178 |
| Note\t16.\t\t\t\t\tLong-Term\tBorrowings | 179 |
| Note\t17.\t\t\t\t\tOther\tLiabilities\tand\tAccrued\tExpenses | 183 |
| Note\t18.\t\t\t\t\tCommitments,\tContingencies\tand\tGuarantees | 184 |
| Note\t19.\t\t\t\t\tShareholders'\tEquity | 191 |
| Note\t20.\t\t\t\t\tRegulation\tand\tCapital\tAdequacy | 194 |
| Note\t21.\t\t\t\t\tEarnings\tPer\tCommon\tShare | 199 |
| Note\t22.\t\t\t\t\tTransactions\twith\tAffiliated\tFunds | 200 |
| Note\t23.\t\t\t\t\tInterest\tIncome\tand\tInterest\tExpense | 201 |
| Note\t24.\t\t\t\t\tIncome\tTaxes | 202 |
| Note\t25.\t\t\t\t\tBusiness\tSegments | 205 |
| Note\t26.\t\t\t\t\tCredit\tConcentrations | 209 |
| Note\t27.\t\t\t\t\tLegal\tProceedings | 210 |
| Note\t28.\t\t\t\t\tEmployee\tBenefit\tPlans | 223 |
| Note\t29.\t\t\t\t\tEmployee\tIncentive\tPlans | 224 |
| Note\t30.\t\t\t\t\tParent\tCompany | 227 |
| Supplemental\tFinancial\tInformation | 228 |
| Quarterly\tResults | 228 |
| Common\tStock\tPrice\tRange | 229 |
| Common\tStock\tPerformance | 229 |
| Selected\tFinancial\tData | 230 |
| Statistical\tDisclosures | 231 |

# 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,	2012,	management	conducted	an	assessment	of	the	firm's internal	control	over	financial	reporting	based	on	the	framework	established	in Internal Control	 — Integrated Framework 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,	2012	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,	2012	has been	audited	by	PricewaterhouseCoopers	LLP,	an	independent	registered	public accounting	firm,	as	stated	in	their	report	appearing	on	page	116,	which	expresses an	unqualified	opinion	on	the	effectiveness	of	the	firm's	internal	control	over financial	reporting	as	of	December	31,	2012.

# 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,	2012	and	2011,	and	the	results	of	its	operations	and	its	cash	flows for	each	of	the	three	years	in	the	period	ended	December	31,	2012,	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,	 2012,	 based	 on criteria	 established in	Internal	Control	—Integrated	Framework 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	 115.	 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/	PRICEWATERHOUSECOOPERS	LLP

# Consolidated	Statements	of	Earnings

|  |  | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions,\texcept\tper\tshare\tamounts | 2012 | 2011 | 2010 |
| Revenues |  |  |  |
| Investment\tbanking | \t$\t\t4,941 | \t$\t\t4,361 | \t$\t\t4,810 |
| Investment\tmanagement | 4,968 | 4,691 | 4,669 |
| Commissions\tand\tfees | 3,161 | 3,773 | 3,569 |
| Market\tmaking | 11,348 | 9,287 | 13,678 |
| Other\tprincipal\ttransactions | 5,865 | 1,507 | 6,932 |
| Total\tnon-interest\trevenues | 30,283 | 23,619 | 33,658 |
| Interest\tincome | 11,381 | 13,174 | 12,309 |
| Interest\texpense | 7,501 | 7,982 | 6,806 |
| Net\tinterest\tincome | 3,880 | 5,192 | 5,503 |
| Net\trevenues,\tincluding\tnet\tinterest\tincome | 34,163 | 28,811 | 39,161 |
| Operating\texpenses |  |  |  |
| Compensation\tand\tbenefits | 12,944 | 12,223 | 15,376 |
| U.K.\tbank\tpayroll\ttax | — | — | 465 |
| Brokerage,\tclearing,\texchange\tand\tdistribution\tfees | 2,208 | 2,463 | 2,281 |
| Market\tdevelopment | 509 | 640 | 530 |
| Communications\tand\ttechnology | 782 | 828 | 758 |
| Depreciation\tand\tamortization | 1,738 | 1,865 | 1,889 |
| Occupancy | 875 | 1,030 | 1,086 |
| Professional\tfees | 867 | 992 | 927 |
| Insurance\treserves | 598 | 529 | 398 |
| Other\texpenses | 2,435 | 2,072 | 2,559 |
| Total\tnon-compensation\texpenses | 10,012 | 10,419 | 10,428 |
| Total\toperating\texpenses | 22,956 | 22,642 | 26,269 |
| Pre-tax\tearnings | 11,207 | 6,169 | 12,892 |
| Provision\tfor\ttaxes | 3,732 | 1,727 | 4,538 |
| Net\tearnings | 7,475 | 4,442 | 8,354 |
| Preferred\tstock\tdividends | 183 | 1,932 | 641 |
| Net\tearnings\tapplicable\tto\tcommon\tshareholders | \t$\t\t7,292 | \t$\t\t2,510 | \t$\t\t7,713 |
| Earnings\tper\tcommon\tshare |  |  |  |
| Basic | \t$\t\t14.63 | \t$\t\t\t\t4.71 | \t$\t\t14.15 |
| Diluted | 14.13 | 4.51 | 13.18 |
| Average\tcommon\tshares\toutstanding |  |  |  |
| Basic | 496.2 | 524.6 | 542.0 |
| Diluted | 516.1 | 556.9 | 585.3 |
|  | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | 117 |

The	accompanying	notes	are	an	integral	part	of	these	consolidated	financial	statements.

# Consolidated	Statements	of	Comprehensive	Income

|  | Year	Ended	December | Year	Ended	December | Year	Ended	December |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Net\tearnings | \t$7,475 | \t$4,442 | \t$8,354 |
| Other\tcomprehensive\tincome/(loss),\tnet\tof\ttax:\nCurrency\ttranslation\tadjustment,\tnet\tof\ttax | (89) | (55) | (38) |
| Pension\tand\tpostretirement\tliability\tadjustments,\tnet\tof\ttax | 168 | (145) | 88 |
| Net\tunrealized\tgains/(losses)\ton\tavailable-for-sale\tsecurities,\tnet\tof\ttax | 244 | (30) | 26 |
| Other\tcomprehensive\tincome/(loss) | 323 | (230) | 76 |
| Comprehensive\tincome | \t$7,798 | \t$4,212 | \t$8,430 |

# Consolidated	Statements	of	Financial	Condition

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions,\texcept\tshare\tand\tper\tshare\tamounts | 2012 | 2011 |
| Assets |  |  |
| Cash\tand\tcash\tequivalents | \t $\t\t72,669 | \t $\t\t56,008 |
| Cash\tand\tsecurities\tsegregated\tfor\tregulatory\tand\tother\tpurposes\t(includes\t$30,484\tand\t$42,014\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\tDecember\t2011,\trespectively) | 49,671 | 64,264 |
| Collateralized\tagreements: |  |  |
| Securities\tpurchased\tunder\tagreements\tto\tresell\tand\tfederal\tfunds\tsold\t(includes\t$141,331\tand\t$187,789\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\tDecember\t2011, |  |  |
| respectively) | 141,334 | 187,789 |
| Securities\tborrowed\t(includes\t$38,395\tand\t$47,621\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\tDecember\t2011,\nrespectively) | 136,893 | 153,341 |
| Receivables\tfrom\tbrokers,\tdealers\tand\tclearing\torganizations | 18,480 | 14,204 |
| Receivables\tfrom\tcustomers\tand\tcounterparties\t(includes\t$7,866\tand\t$9,682\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\tDecember\t2011,\trespectively) | 72,874 | 60,261 |
| Financial\tinstruments\towned,\tat\tfair\tvalue\t(includes\t$67,177\tand\t$53,989\t\tpledged\tas\tcollateral\tas\tof\tDecember\t2012\tand\nDecember\t2011,\trespectively) | 407,011 | 364,206 |
| Other\tassets\t(includes\t$13,426\tand\t$0\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\tDecember\t2011,\trespectively) | 39,623 | 23,152 |
| Total\tassets | \t $938,555 | \t $923,225 |
| Liabilities\tand\tshareholders'\tequity |  |  |
| Deposits\t(includes\t$5,100\tand\t$4,526\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\tDecember\t2011,\trespectively) | \t $\t\t70,124 | \t $\t\t46,109 |
| Collateralized\tfinancings:\nSecurities\tsold\tunder\tagreements\tto\trepurchase,\tat\tfair\tvalue | 171,807 | 164,502 |
| Securities\tloaned\t(includes\t$1,558\tand\t$107\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\tDecember\t2011,\nrespectively) | 13,765 | 7,182 |
| Other\tsecured\tfinancings\t(includes\t$30,337\tand\t$30,019\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\tDecember\t2011,\trespectively) | 32,010 | 37,364 |
| Payables\tto\tbrokers,\tdealers\tand\tclearing\torganizations | 5,283 | 3,667 |
| Payables\tto\tcustomers\tand\tcounterparties | 189,202 | 194,625 |
| Financial\tinstruments\tsold,\tbut\tnot\tyet\tpurchased,\tat\tfair\tvalue | 126,644 | 145,013 |
| Unsecured\tshort-term\tborrowings,\tincluding\tthe\tcurrent\tportion\tof\tunsecured\tlong-term\tborrowings\t(includes\t$17,595\tand\t$17,854\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\nDecember\t2011,\trespectively) | 44,304 | 49,038 |
| Unsecured\tlong-term\tborrowings\t(includes\t$12,593\tand\t$17,162\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\tDecember\t2011,\trespectively) | 167,305 | 173,545 |
| Other\tliabilities\tand\taccrued\texpenses\t(includes\t$12,043\tand\t$9,486\tat\tfair\tvalue\tas\tof\tDecember\t2012\tand\tDecember\t2011,\trespectively) | 42,395 | 31,801 |
| Total\tliabilities | 862,839 | 852,846 |
| Commitments,\tcontingencies\tand\tguarantees |  |  |
| Shareholders'\tequity |  |  |
|  | 6,200 | 3,100 |
| respectively,\tand\t465,148,387\tand\t485,467,565\tshares\toutstanding\tas\tof\tDecember\t2012\tand\tDecember\t2011,\trespectively | 8 | 8 |
| Restricted\tstock\tunits\tand\temployee\tstock\toptions | 3,298 | 5,681 |
|  | — | — |
| Additional\tpaid-in\tcapital | 48,030 | 45,553 |
| Retained\tearnings | 65,223 | 58,834 |
| Accumulated\tother\tcomprehensive\tloss | (193) | (516) |
|  | (46,850) | (42,281) |
| Total\tshareholders'\tequity | 75,716 | 70,379 |
| Total\tliabilities\tand\tshareholders'\tequity | \t $938,555 | \t $923,225 |
|  | Goldman\tSachs\t2012\tForm\t10-K | 119 |

# Consolidated	Statements	of	Changes	in	Shareholders'	Equity

|  | Year	Ended	December | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Preferred\tstock |  |  |  |
| Balance,\tbeginning\tof\tyear | $\t\t\t3,100 | $\t\t\t6,957 | $\t\t\t6,957 |
| Issued | 3,100 | — | — |
| Repurchased | — | (3,857) | — |
| Balance,\tend\tof\tyear | 6,200 | 3,100 | 6,957 |
| Common\tstock |  |  |  |
| Balance,\tbeginning\tof\tyear | 8 | 8 | 8 |
| Issued | — | — | — |
| Balance,\tend\tof\tyear | 8 | 8 | 8 |
| Restricted\tstock\tunits\tand\temployee\tstock\toptions |  |  |  |
| Balance,\tbeginning\tof\tyear | 5,681 | 7,706 | 6,245 |
| Issuance\tand\tamortization\tof\trestricted\tstock\tunits\tand\temployee\tstock\toptions | 1,368 | 2,863 | 4,137 |
| Delivery\tof\tcommon\tstock\tunderlying\trestricted\tstock\tunits | (3,659) | (4,791) | (2,521) |
| Forfeiture\tof\trestricted\tstock\tunits\tand\temployee\tstock\toptions | (90) | (93) | (149) |
| Exercise\tof\temployee\tstock\toptions | (2) | (4) | (6) |
| Balance,\tend\tof\tyear | 3,298 | 5,681 | 7,706 |
| Additional\tpaid-in\tcapital |  |  |  |
| Balance,\tbeginning\tof\tyear | 45,553 | 42,103 | 39,770 |
| Issuance\tof\tcommon\tstock | — | 103 | — |
| Delivery\tof\tcommon\tstock\tunderlying\tshare-based\tawards | 3,939 | 5,160 | 3,067 |
| Cancellation\tof\trestricted\tstock\tunits\tin\tsatisfaction\tof\twithholding\ttax\trequirements | (1,437) | (1,911) | (972) |
| Preferred\tstock\tissuance\tcosts | (13) | — | — |
| Excess\tnet\ttax\tbenefit/(provision)\trelated\tto\tshare-based\tawards | (11) | 138 | 239 |
| Cash\tsettlement\tof\tshare-based\tcompensation | (1) | (40) | (1) |
| Balance,\tend\tof\tyear | 48,030 | 45,553 | 42,103 |
| Retained\tearnings |  |  |  |
| Balance,\tbeginning\tof\tyear | 58,834 | 57,163 | 50,252 |
| Net\tearnings | 7,475 | 4,442 | 8,354 |
| Dividends\tand\tdividend\tequivalents\tdeclared\ton\tcommon\tstock\tand\trestricted\tstock\tunits | (903) | (769) | (802) |
| Dividends\ton\tpreferred\tstock | (183) | (2,002) | (641) |
| Balance,\tend\tof\tyear | 65,223 | 58,834 | 57,163 |
| Accumulated\tother\tcomprehensive\tloss |  |  |  |
| Balance,\tbeginning\tof\tyear | (516) | (286) | (362) |
| Other\tcomprehensive\tincome/(loss) | 323 | (230) | 76 |
| Balance,\tend\tof\tyear | (193) | (516) | (286) |
| Stock\theld\tin\ttreasury,\tat\tcost |  |  |  |
| Balance,\tbeginning\tof\tyear | (42,281) | (36,295) | (32,156) |
| Repurchased | (4,646) | (6,051) | (4,185) |
| Reissued | 77 | 65 | 46 |
| Balance,\tend\tof\tyear | (46,850) | (42,281) | (36,295) |
| Total\tshareholders'\tequity | $\t75,716 | $\t70,379 | $\t77,356 |

# Consolidated	Statements	of	Cash	Flows

|  | Year	Ended	December | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Cash\tflows\tfrom\toperating\tactivities |  |  |  |
| Net\tearnings | $\t\t\t7,475 | $\t\t\t4,442 | $\t\t\t8,354 |
| Adjustments\tto\treconcile\tnet\tearnings\tto\tnet\tcash\tprovided\tby/(used\tfor)\toperating\tactivities\nDepreciation\tand\tamortization | 1,738 | 1,869 | 1,904 |
| Deferred\tincome\ttaxes | (356) | 726 | 1,339 |
| Share-based\tcompensation | 1,319 | 2,849 | 4,035 |
| Gain\ton\tsale\tof\thedge\tfund\tadministration\tbusiness | (494) | — | — |
| Changes\tin\toperating\tassets\tand\tliabilities\nCash\tand\tsecurities\tsegregated\tfor\tregulatory\tand\tother\tpurposes | 10,817 | (10,532) | (17,094) |
| Net\treceivables\tfrom\tbrokers,\tdealers\tand\tclearing\torganizations | (2,838) | (3,780) | 201 |
| Net\tpayables\tto\tcustomers\tand\tcounterparties | (17,661) | 13,883 | (4,637) |
| Securities\tborrowed,\tnet\tof\tsecurities\tloaned | 23,031 | 8,940 | 19,638 |
| Securities\tsold\tunder\tagreements\tto\trepurchase,\tnet\tof\tsecurities\tpurchased\tunder\tagreements\tto\tresell\tand\tfederal\tfunds\tsold | 53,527 | 122 | (10,092) |
| Financial\tinstruments\towned,\tat\tfair\tvalue | (48,783) | 5,085 | (9,231) |
| Financial\tinstruments\tsold,\tbut\tnot\tyet\tpurchased,\tat\tfair\tvalue | (18,867) | 4,243 | 11,602 |
| Other,\tnet | 3,971 | (5,346) | (11,376) |
| Net\tcash\tprovided\tby/(used\tfor)\toperating\tactivities | 12,879 | 22,501 | (5,357) |
| Cash\tflows\tfrom\tinvesting\tactivities |  |  |  |
| Purchase\tof\tproperty,\tleasehold\timprovements\tand\tequipment | (961) | (1,184) | (1,227) |
| Proceeds\tfrom\tsales\tof\tproperty,\tleasehold\timprovements\tand\tequipment | 49 | 78 | 72 |
| Business\tacquisitions,\tnet\tof\tcash\tacquired | (593) | (431) | (804) |
| Proceeds\tfrom\tsales\tof\tinvestments | 1,195 | 2,645 | 1,371 |
| Purchase\tof\tavailable-for-sale\tsecurities | (5,220) | (2,752) | (1,885) |
| Proceeds\tfrom\tsales\tof\tavailable-for-sale\tsecurities | 4,537 | 3,129 | 2,288 |
| Loans\theld\tfor\tinvestment,\tnet | (2,741) | (856) | (800) |
| Net\tcash\tprovided\tby/(used\tfor)\tinvesting\tactivities | (3,734) | 629 | (985) |
| Cash\tflows\tfrom\tfinancing\tactivities |  |  |  |
| Unsecured\tshort-term\tborrowings,\tnet | (1,952) | (3,780) | 1,196 |
| Other\tsecured\tfinancings\t(short-term),\tnet | 1,540 | (1,195) | 12,689 |
| Proceeds\tfrom\tissuance\tof\tother\tsecured\tfinancings\t(long-term) | 4,687 | 9,809 | 5,500 |
| Repayment\tof\tother\tsecured\tfinancings\t(long-term),\tincluding\tthe\tcurrent\tportion | (11,576) | (8,878) | (4,849) |
| Proceeds\tfrom\tissuance\tof\tunsecured\tlong-term\tborrowings | 27,734 | 29,169 | 20,231 |
| Repayment\tof\tunsecured\tlong-term\tborrowings,\tincluding\tthe\tcurrent\tportion | (36,435) | (29,187) | (22,607) |
| Derivative\tcontracts\twith\ta\tfinancing\telement,\tnet | 1,696 | 1,602 | 1,222 |
| Deposits,\tnet | 24,015 | 7,540 | (849) |
| Preferred\tstock\trepurchased | — | (3,857) | — |
| Common\tstock\trepurchased | (4,640) | (6,048) | (4,183) |
| Dividends\tand\tdividend\tequivalents\tpaid\ton\tcommon\tstock,\tpreferred\tstock\tand\trestricted\tstock\tunits | (1,086) | (2,771) | (1,443) |
| Proceeds\tfrom\tissuance\tof\tpreferred\tstock,\tnet\tof\tissuance\tcosts | 3,087 | — | — |
| Proceeds\tfrom\tissuance\tof\tcommon\tstock,\tincluding\tstock\toption\texercises | 317 | 368 | 581 |
| Excess\ttax\tbenefit\trelated\tto\tshare-based\tcompensation | 130 | 358 | 352 |
| Cash\tsettlement\tof\tshare-based\tcompensation | (1) | (40) | (1) |
| Net\tcash\tprovided\tby/(used\tfor)\tfinancing\tactivities | 7,516 | (6,910) | 7,839 |
| Net\tincrease\tin\tcash\tand\tcash\tequivalents | 16,661 | 16,220 | 1,497 |
| Cash\tand\tcash\tequivalents,\tbeginning\tof\tyear | 56,008 | 39,788 | 38,291 |
| Cash\tand\tcash\tequivalents,\tend\tof\tyear | $\t72,669 | $\t56,008 | $\t39,788 |

# SUPPLEMENTAL	DISCLOSURES:

Cash	payments	for	interest,	net	of	capitalized	interest,	were	$9.25	billion,	$8.05	billion	and	$6.74	billion	for	the	years	ended	December	2012,	December	2011	and	December	2010,	respectively.

Cash	payments	for	income	taxes,	net	of	refunds,	were	$1.88	billion,	$1.78	billion	and	$4.48	billion	for	the	years	ended	December	2012,	December	2011	and	December	2010,	respectively.

Non-cash	activities:

During	the	year	ended	December	2012,	the	firm	assumed	$77	million	of	debt	in	connection	with	business	acquisitions.	During	the	year	ended	December	2011,	the	firm	assumed	$2.09	billion	of	debt and	issued	$103	million	of	common	stock	in	connection	with	the	acquisition	of	Goldman	Sachs	Australia	Pty	Ltd	(GS	Australia),	formerly	Goldman	Sachs	&	Partners	Australia	Group	Holdings	Pty	Ltd. During	the	year	ended	December	2010,	the	firm	assumed	$90	million	of	debt	in	connection	with	business	acquisitions.	In	addition,	in	the	first	quarter	of	2010,	the	firm	recorded	an	increase	of approximately	$3	billion	in	both	assets	(primarily	financial	instruments	owned,	at	fair	value)	and	liabilities	(primarily	unsecured	short-term	borrowings	and	other	liabilities)	upon	adoption	of	Accounting Standards	Update	(ASU)	No.	2009-17,	"Consolidations	(Topic	810)	—	Improvements	to	Financial	Reporting	by	Enterprises	Involved	with	Variable	Interest	Entities."

# Notes	to	Consolidated	Financial	Statements

# Description	of	Business

The	Goldman	Sachs	Group,	Inc.	(Group	Inc.),	a	Delaware	corporation,	together with	 its	 consolidated	 subsidiaries	 (collectively,	 the	 firm),	 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.

The	firm	reports	its	activities	in	the	following	four	business	segments:

The	firm	provides	a	broad	range	of	investment	banking	services	to	a	diverse group	of	corporations,	financial	institutions,	investment	funds	and	governments. Services	 include	 strategic	 advisory	 assignments	 with	 respect	 to	 mergers	 and acquisitions,	 divestitures,	 corporate	 defense	 activities,	 risk	 management, restructurings	and	spin-offs,	and	debt	and	equity	underwriting	of	public	offerings and	 private	 placements,	 including	 domestic	 and	 cross-border	 transactions,	 as well	as	derivative	transactions	directly	related	to	these	activities.

The	 firm	 facilitates	 client	 transactions	 and	 makes	 markets	 in	 fixed	 income, equity,	 currency	 and	 commodity	 products,	 primarily	 with	 institutional	 clients such	as	corporations,	financial	institutions,	investment	funds	and	governments. The	firm	also	makes	markets	in	and	clears	client	transactions	on	major	stock, options	 and	 futures	 exchanges	 worldwide	 and	 provides	 financing,	 securities lending	and	other	prime	brokerage	services	to	institutional	clients.

The	firm	invests	in	and	originates	loans	to	provide	financing	to	clients.	These investments	 and	 loans	 are	 typically	 longer-term	 in	 nature.	 The	 firm	 makes investments,	directly	and	indirectly	through	funds	that	the	firm	manages,	in	debt securities	and	loans,	public	and	private	equity	securities,	real	estate,	consolidated investment	entities	and	power	generation	facilities.

The	 firm	 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.	The	firm	also offers	wealth	advisory	services,	including	portfolio	management	and	financial counseling,	 and	 brokerage	 and	 other	 transaction	 services	 to	 high-net-worth individuals	and	families.

# Basis	of	Presentation

These	 consolidated	 financial	 statements	 are	 prepared	 in	 accordance	 with accounting	principles	generally	accepted	in	the	United	States	(U.S.	GAAP)	and include	the	accounts	of	Group	Inc.	and	all	other	entities	in	which	the	firm	has	a controlling	 financial	 interest.	 Intercompany	 transactions	 and	 balances	 have been	eliminated.

All	references	to	2012,	2011	and	2010	refer	to	the	firm's	years	ended,	or	the dates,	 as	 the	 context	 requires,	 December	 31,	 2012,	 December	 31,	 2011	 and December	31,	2010,	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.

# Significant	Accounting	Policies

The	firm's	significant	accounting	policies	include	when	and	how	to	measure	the fair	 value	 of	 assets	 and	 liabilities,	 accounting for	 goodwill	 and identifiable intangible	assets,	and	when	to	consolidate	an	entity.	See	Notes	5	through	8	for policies	 on	 fair	 value	 measurements,	 Note	 13 for	 policies	 on	 goodwill	 and identifiable	 intangible	 assets,	 and	 below and Note 11 for policies on consolidation	 accounting.	All	 other	 significant	 accounting	 policies	 are	 either discussed	below	or	included	in	the	following	footnotes:

# Consolidation

The	 firm	 consolidates	 entities	 in	 which	 the	 firm	 has	 a	 controlling	 financial interest.	The	firm	determines	whether	it	has	a	controlling	financial	interest	in	an entity	 by	 first	 evaluating	 whether	 the	 entity	 is	 a	 voting	 interest	 entity	 or	 a variable	interest	entity	(VIE).

Voting	Interest	Entities.	Voting	interest	entities	are	entities	in	which	(i)	the total	equity	investment	at	risk	 is	sufficient	 to	enable	 the	entity	 to	finance	 its activities	independently	and	(ii)	the	equity	holders	have	the	power	to	direct	the activities	of	the	entity	that	most	significantly	impact	its	economic	performance, the	 obligation	 to	 absorb	 the	 losses	 of	 the	 entity	 and	 the	 right	 to	 receive	 the residual	 returns	 of	 the	 entity.	The	 usual	 condition	 for	 a	 controlling	 financial interest	in	a	voting	interest	entity	is	ownership	of	a	majority	voting	interest.	If	the firm	 has	 a	 majority	 voting	 interest	 in	 a	 voting	 interest	 entity,	 the	 entity is	consolidated.

Variable	Interest	Entities. 	A	VIE	is	an	entity	that	lacks	one	or	more	of	the characteristics	of	a	voting	interest	entity.	The	firm	has	a	controlling	financial interest	in	a	VIE	when	the	firm	has	a	variable	interest	or	interests	that	provide	it with	 (i)	 the	 power	 to	 direct	 the	 activities	 of	 the	VIE	 that	 most	 significantly impact	the	VIE's	economic	performance	and	(ii)	the	obligation	to	absorb	losses of	the	VIE	or	the	right	to	receive	benefits	from	the	VIE	that	could	potentially	be significant	to	the	VIE.	See	Note	11	for	further	information	about	VIEs.

Equity-Method Investments.	When the	 firm	 does	 not	 have	 a	 controlling financial	interest	in	an	entity	but	can	exert	significant	influence	over	the	entity's operating	and	financial	policies,	the	investment	is	accounted	for	either	(i)	under the	equity	method	of	accounting	or	(ii)	at	fair	value	by	electing	the	fair	value option	available	under	U.S.	GAAP.	Significant	influence	generally	exists	when the	 firm	 owns	 20%	 to	 50%	 of	 the	 entity's	 common	 stock	 or	 in-substance common	stock.

In	general,	the	firm	accounts	for	investments	acquired	after	the	fair	value	option became	 available,	 at	 fair	 value.	 In	 certain	 cases,	 the	 firm	 applies	 the	 equity method	of	accounting	to	new	investments	that	are	strategic	in	nature	or	closely related	to	the	firm's	principal	business	activities,	when	the	firm	has	a	significant degree	of	involvement	in	the	cash	flows	or	operations	of	the	investee	or	when cost-benefit	 considerations	 are	 less	 significant.	 See	 Note 12 for	 further information	about	equity-method	investments.

Investment	Funds.	The	firm	has	formed	numerous	 investment	funds	with third-party	investors.	These	funds	are	typically	organized	as	limited	partnerships or	 limited	 liability	 companies	 for	 which	 the	 firm	 acts	 as	 general	 partner	 or manager.	Generally,	the	firm	does	not	hold	a	majority	of	the	economic	interests in	these	funds.	These	funds	are	usually	voting	interest	entities	and	generally	are not	consolidated	because	third-party	investors	typically	have	rights	to	terminate the	funds	or	to	remove	the	firm	as	general	partner	or	manager.	Investments	in these	funds	are	included	in	"Financial	instruments	owned,	at	fair	value."	See Notes	6,	18	and	22	for	further	information	about	investments	in	funds.

Preparation	of	these	consolidated	financial	statements	requires	management	to make	certain	estimates	and	assumptions,	the	most	important	of	which	relate	to fair	 value	 measurements,	 accounting	 for	 goodwill	 and	 identifiable	 intangible assets,	and	 the	provision	for	 losses	 that	may	arise	from	 litigation,	regulatory proceedings	and	tax	audits.	These	estimates	and	assumptions	are	based	on	the best	available	information	but	actual	results	could	be	materially	different.

# Revenue	Recognition

# Financial	 Assets	 and	 Financial	 Liabilities	 at	 Fair	 Value. 	 Financial

instruments	 owned,	 at	 fair	 value	 and	 Financial	 instruments	 sold,	 but	 not	 yet purchased,	at	fair	value	are	recorded	at	fair	value	either	under	 the	fair	value option	or	in	accordance	with	other	U.S.	GAAP.	In	addition,	the	firm	has	elected to	account	for	certain	of	its	other	financial	assets	and	financial	liabilities	at	fair value	by	electing	the	fair	value	option.	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.	Financial	assets	are	marked	to	bid	prices and	financial	liabilities	are	marked	to	offer	prices.	Fair	value	measurements	do not	include	transaction	costs.	Fair	value	gains	or	losses	are	generally	included	in "Market	 making"	 for	 positions	 in	 Institutional	 Client	 Services	 and	 "Other principal	transactions"	for	positions	in	Investing	&	Lending.	See	Notes	5	through 8	for	further	information	about	fair	value	measurements.

Investment Banking. Fees	 from	 financial	 advisory	 assignments	 and underwriting	revenues	are	recognized	in	earnings	when	the	services	related	to	the underlying	 transaction	 are	 completed	 under	 the	 terms	 of	 the	 assignment. Expenses	associated	with	such	transactions	are	deferred	until	the	related	revenue is	 recognized	 or	 the	 assignment	 is	 otherwise	 concluded.	 Expenses	 associated with	financial	advisory	assignments	are	recorded	as	non-compensation	expenses, net	 of	 client	 reimbursements.	 Underwriting	 revenues	 are	 presented	 net	 of related	expenses.

Investment	 Management.	The	firm	earns	management	fees	and	 incentive fees	for	investment	management	services.	Management	fees	are	calculated	as	a percentage	 of	 net	 asset	 value,	 invested	 capital	 or	 commitments,	 and	 are recognized	over	the	period	that	the	related	service	is	provided.	Incentive	fees	are calculated	as	a	percentage	of	a	fund's	or	separately	managed	account's	return,	or excess	 return	 above	 a	 specified	 benchmark	 or	 other	 performance	 target. Incentive	fees	are	generally	based	on	investment	performance	over	a	12-month period	or	over	the	life	of	a	fund.	Fees	that	are	based	on	performance	over	a	12- month	 period	 are	 subject	 to	 adjustment	 prior	 to	 the	 end	 of	 the	 measurement period.	For	fees	that	are	based	on	investment	performance	over	the	life	of	the fund,	 future	 investment	 underperformance	 may	 require	 fees	 previously distributed	to	the	firm	to	be	returned	to	the	fund.	Incentive	fees	are	recognized only	 when	 all	 material	 contingencies	 have	 been	 resolved.	 Management	 and incentive	fee	revenues	are	included	in	"Investment	management"	revenues.

Commissions and	 Fees.	The firm	 earns	 "Commissions	 and	 fees"	 from executing	and	clearing	client	transactions	on	stock,	options	and	futures	markets. Commissions	and	fees	are	recognized	on	the	day	the	trade	is	executed.

# Transfers	of	Assets

Transfers	of	assets	are	accounted	for	as	sales	when	the	firm	has	relinquished control	over	the	assets	transferred.	For	transfers	of	assets	accounted	for	as	sales, any	related	gains	or	losses	are	recognized	in	net	revenues.	Assets	or	liabilities that	 arise	 from	 the	 firm's	 continuing	 involvement	 with	 transferred	 assets	 are measured	at	fair	value.	For	transfers	of	assets	that	are	not	accounted	for	as	sales, the	assets	remain	in	"Financial	instruments	owned,	at	fair	value"	and	the	transfer is	accounted	for	as	a	collateralized	financing,	with	the	related	interest	expense recognized	over	the	life	of	the	transaction.	See	Note	9	for	further	information about	transfers	of	assets	accounted	for	as	collateralized	financings	and	Note	10 for	further	information	about	transfers	of	assets	accounted	for	as	sales.

# Receivables	from	Customers	and	Counterparties

Receivables	from	customers	and	counterparties	generally	relate	to	collateralized transactions.	 Such	 receivables	 are	 primarily	 comprised	 of	 customer	 margin loans,	 certain	 transfers	 of	 assets	 accounted	 for	 as	 secured	 loans	 rather	 than purchases	at	fair	value,	collateral	posted	in	connection	with	certain	derivative transactions,	and	 loans	held	for	 investment.	Certain	of	 the	firm's	receivables from	customers	and	counterparties	are	accounted	for	at	fair	value	under	the	fair value	option,	with	changes	in	fair	value	generally	included	in	"Market	making" revenues.	Receivables	from	customers	and	counterparties	not	accounted	for	at fair	 value	 are	 accounted	 for	 at	 amortized	 cost	 net	 of	 estimated	 uncollectible amounts.	 Interest	 on	 receivables	 from	 customers	 and	 counterparties	 is recognized	over	the	life	of	the	transaction	and	included	in	"Interest	income."	See Note 8 for	 further	 information	 about	 receivables	 from	 customers and	counterparties.

# Payables	to	Customers	and	Counterparties

Payables	to	customers	and	counterparties	primarily	consist	of	customer	credit balances	related	to	the	firm's	prime	brokerage	activities.	Payables	to	customers and	 counterparties	 are	 accounted	 for	 at	 cost	 plus	 accrued	 interest,	 which generally	approximates	fair	value.	While	these	payables	are	carried	at	amounts that	approximate	fair	value,	they	are	not	accounted	for	at	fair	value	under	the	fair value	option	or	at	fair	value	in	accordance	with	other	U.S.	GAAP	and	therefore are	not	included	in	the	firm's	fair	value	hierarchy	in	Notes	6,	7	and	8.	Had	these payables	been	included	in	the	firm's	fair	value	hierarchy,	substantially	all	would have	been	classified	in	level	2	as	of	December	2012.

# Receivables from	 and	 Payables to	 Brokers,	 Dealers	 and	 Clearing Organizations

Receivables	from	and	payables	to	brokers,	dealers	and	clearing	organizations	are accounted	for	at	cost	plus	accrued	interest,	which	generally	approximates	fair value.	 While	 these	 receivables	 and	 payables	 are	 carried	 at	 amounts	 that approximate	fair	value,	they	are	not	accounted	for	at	fair	value	under	the	fair value	option	or	at	fair	value	in	accordance	with	other	U.S.	GAAP	and	therefore are	not	included	in	the	firm's	fair	value	hierarchy	in	Notes	6,	7	and	8.	Had	these receivables	 and	 payables	 been	 included	 in	 the	 firm's	 fair	 value	 hierarchy, substantially	all	would	have	been	classified	in	level	2	as	of	December	2012.

# Insurance	Activities

Certain	of	the	firm's	insurance	and	reinsurance	contracts	are	accounted	for	at	fair value	under	the	fair	value	option,	with	changes	in	fair	value	included	in	"Market making"	revenues.	See	Note	8	for	further	information	about	the	fair	values	of these	insurance	and	reinsurance	contracts.	See	Note	12	for	further	information about	 the	 firm's	 reinsurance	 business	 classified	 as	 held	 for	 sale	 as	 of December	2012.

Revenues	from	variable	annuity	and	life	insurance	and	reinsurance	contracts	not accounted	for	at	fair	value	generally	consist	of	fees	assessed	on	contract	holder account	balances	for	mortality	charges,	policy	administration	fees	and	surrender charges.	These	revenues	are	recognized	in	earnings	over	the	period	that	services are	 provided	 and	 are	 included	 in	 "Market	 making"	 revenues.	 Changes	 in reserves,	 including	 interest	 credited	 to	 policyholder	 account	 balances,	 are recognized	in	"Insurance	reserves."

Premiums	 earned	 for	 underwriting	 property	 catastrophe	 reinsurance	 are recognized	in	earnings	over	the	coverage	period,	net	of	premiums	ceded	for	the cost	of	reinsurance,	and	are	included	in	"Market	making"	revenues.	Expenses	for liabilities	related	to	property	catastrophe	reinsurance	claims,	including	estimates of	 losses	 that	 have	 been	 incurred	 but	 not	 reported,	 are	 included	 in "Insurance	reserves."

# Foreign	Currency	Translation

Assets	and	liabilities	denominated	in	non-U.S.	currencies	are	translated	at	rates of	exchange	prevailing	on	the	date	of	the	consolidated	statements	of	financial condition	and	revenues	and	expenses	are	translated	at	average	rates	of	exchange for	the	period.	Foreign	currency	remeasurement	gains	or	losses	on	transactions in	 nonfunctional	 currencies	 are	 recognized	 in	 earnings.	 Gains	 or	 losses	 on translation	 of	 the	 financial	 statements	 of	 a	 non-U.S.	 operation,	 when	 the functional	currency	is	other	than	the	U.S.	dollar,	are	included,	net	of	hedges	and taxes,	in	the	consolidated	statements	of	comprehensive	income.

# Cash	and	Cash	Equivalents

The	firm	defines	cash	equivalents	as	highly	liquid	overnight	deposits	held	in	the ordinary	course	of	business.	As	of	December	2012	and	December	2011,	"Cash and	cash	equivalents"	included	$6.75	billion	and	$7.95	billion,	respectively,	of cash	and	due	from	banks,	and	$65.92	billion	and	$48.05	billion,	respectively,	of interest-bearing	deposits	with	banks.

Reconsideration	 of	 Effective	 Control for	 Repurchase	 Agreements (ASC	860).	In	April	2011,	the	FASB	issued	ASU	No.	2011-03,	"Transfers	and Servicing	(Topic	860)	—	Reconsideration	of	Effective	Control	for	Repurchase Agreements."	ASU	No.	2011-03	changes	the	assessment	of	effective	control	by removing	 (i)	 the	 criterion	 that	 requires	 the	 transferor	 to	 have	 the	 ability	 to repurchase	or	redeem	financial	assets	on	substantially	the	agreed	terms,	even	in the	 event	 of	 default	 by	 the	 transferee,	 and	 (ii)	 the	 collateral	 maintenance implementation	 guidance	 related	 to	 that	 criterion.	 ASU	 No.	 2011-03	 was effective	for	periods	beginning	after	December	15,	2011.	The	firm	adopted	the standard	on	January	1,	2012.	Adoption	of	ASU	No.	2011-03	did	not	affect	the firm's	financial	condition,	results	of	operations	or	cash	flows.

# Amendments to	 Achieve	 Common	 Fair	 Value	 Measurement	 and Disclosure	 Requirements in	 U.S.	 GAAP	 and IFRSs (ASC	 820).	In

May	2011,	the	FASB	issued	ASU	No.	2011-04,	"Fair	Value	Measurements	and Disclosures	 (Topic 820)	 —	 Amendments to	 Achieve	 Common	 Fair	 Value Measurement	and	Disclosure	Requirements	 in	U.S.	GAAP	and	IFRSs."	ASU No.	2011-04

clarifies	 the	 application	 of	 existing	 fair	 value	 measurement	 and	 disclosure requirements,	 changes	 certain	 principles	 related	 to	 measuring	 fair	 value,	 and requires	additional	disclosures	about	fair	value	measurements.	ASU	No.	2011-04 was	effective	for	periods	beginning	after	December	15,	2011.	The	firm	adopted the	 standard	 on	 January	 1,	 2012.	 Adoption	 of	 ASU	 No.	 2011-04	 did	 not materially	 affect	 the	 firm's	 financial	 condition,	 results	 of	 operations	 or cash	flows.

Derecognition of in Substance Real Estate (ASC 360). In December	 2011,	 the	 FASB	 issued	ASU	 No.	 2011-10,	 "Property,	 Plant,	 and Equipment	(Topic	360)	—	Derecognition	of	in	Substance	Real	Estate	—	a	Scope Clarification."	 ASU	 No.	 2011-10	 clarifies	 that	 in	 order	 to	 deconsolidate	 a subsidiary	(that	 is	 in	substance	real	estate)	 as	 a	 result	 of	 a	 parent	 no	 longer controlling	the	subsidiary	due	to	a	default	on	the	subsidiary's	nonrecourse	debt, the	parent	also	must	satisfy	the	sale	criteria	in	ASC	360-20,	"Property,	Plant,	and Equipment	 —	 Real	 Estate	 Sales."	 The	 ASU	 was	 effective	 for	 fiscal	 years beginning	on	or	after	June	15,	2012.	The	firm	will	apply	the	provisions	of	the ASU	to	such	events	occurring	on	or	after	January	1,	2013.	Since	the	ASU	applies only	to	events	occurring	on	or	after	January	1,	2013,	adoption	did	not	affect	the firm's	financial	condition,	results	of	operations	or	cash	flows.

Disclosures	 about	 Offsetting	Assets	 and	 Liabilities	 (ASC	 210). In December	 2011,	 the	 FASB	 issued	 ASU	 No.	 2011-11,	 "Balance	 Sheet (Topic 210)	 —	 Disclosures about	 Offsetting	 Assets	 and	 Liabilities."	 ASU No.	 2011-11,	 as	 amended	 by	 ASU	 2013-01,	 "Balance	 Sheet	 (Topic 210): Clarifying	 the	 Scope	 of	 Disclosures	 about	 Offsetting	Assets	 and	 Liabilities," requires	disclosure	of	the	effect	or	potential	effect	of	offsetting	arrangements	on the	firm's	financial	position	as	well	as	enhanced	disclosure	of	the	rights	of	setoff associated	 with	 the	 firm's	 recognized	 derivative	 instruments,	 including bifurcated	embedded	derivatives,	repurchase	agreements	and	reverse	repurchase agreements,	and	securities	borrowing	and	lending	transactions.	ASU	No.	2011- 11	is	effective	for	periods	beginning	on	or	after	January	1,	2013.	Since	these amended	principles	require	only	additional	disclosures	concerning	offsetting	and related	 arrangements,	 adoption	 will	 not	 affect	 the	 firm's	 financial	 condition, results	of	operations	or	cash	flows.

# Financial Instruments Owned, at Fair Value and Financial	Instruments	Sold,	But	Not	Yet	Purchased,	at Fair	Value

Financial	instruments	owned,	at	fair	value	and	financial	instruments	sold,	but	not yet	purchased,	at	fair	value	are	accounted	for	at	fair	value	either	under	the	fair value	option	or	in	accordance	with	other	U.S.	GAAP.	See	Note	8	for	further information	 about	 the	 fair	 value	 option.	The	 table	 below	 presents	 the	 firm's financial	instruments	owned,	at	fair	value,	including	those	pledged	as	collateral, and	financial	instruments	sold,	but	not	yet	purchased,	at	fair	value.	The	firm	held $9.07	billion	and	$4.86	billion	as	of

December	2012	and	December	2011,	respectively,	of	securities	accounted	for	as available-for-sale	 related	 to	 the	 firm's	 reinsurance	 business.	 As	 of December	2012,	such	assets	were	classified	as	held	for	sale	and	were	included	in "Other	assets."	See	Note	12	for	further	information	about	assets	held	for	sale.	As of	December	2011,	all	available-for-sale	securities	were	included	in	"Financial instruments	owned,	at	fair	value."

|  | As	of	December	2012 | As	of	December	2012 | As	of	December	2011 | As	of	December	2011 |
| :--- | :--- | :--- | :--- | :--- |
| in\tmillions | Financial\nInstruments\nOwned | Financial\nInstruments\nSold,\tBut\nNot\tYet\nPurchased | Financial\nInstruments\nOwned | Financial\nInstruments\nSold,\tBut\nNot\tYet\nPurchased |
| Commercial\tpaper,\tcertificates\tof\tdeposit,\ttime\tdeposits\tand\tother\nmoney\tmarket\tinstruments | $\t\t\t\t6,057 | $\t\t\t\t\t\t\t\t\t— | $\t\t13,440 | $\t\t\t\t\t\t\t\t\t— |
| U.S.\tgovernment\tand\tfederal\tagency\tobligations | 93,241 | 15,905 | 87,040 | 21,006 |
| Non-U.S.\tgovernment\tand\tagency\tobligations | 62,250 | 32,361 | 49,205 | 34,886 |
| Mortgage\tand\tother\tasset-backed\tloans\tand\tsecurities:\nLoans\tand\tsecurities\tbacked\tby\tcommercial\treal\testate | 9,805 | — | 6,699 | 27 |
| Loans\tand\tsecurities\tbacked\tby\tresidential\treal\testate | 8,216 | 4 | 7,592 | 3 |
| Bank\tloans\tand\tbridge\tloans | 22,407 | 1,779^\t3 | 19,745 | 2,756^\t3 |
| Corporate\tdebt\tsecurities | 20,981 | 5,761 | 22,131 | 6,553 |
| State\tand\tmunicipal\tobligations | 2,477 | 1 | 3,089 | 3 |
| Other\tdebt\tobligations | 2,251 | — | 4,362 | — |
| Equities\tand\tconvertible\tdebentures | 96,454 | 20,406 | 65,113 | 21,326 |
| Commodities\t^1 | 11,696 | — | 5,762 | — |
| Derivatives\t^2 | 71,176 | 50,427 | 80,028 | 58,453 |
| Total | $407,011 | $126,644 | $364,206 | $145,013 |

1.Includes	commodities	that	have	been	transferred	to	third	parties,	which	were	accounted	for	as	collateralized	financings	rather	than	sales,	of	$4.29	billion	and	$2.49	billion	as	of	December	2012	and December	2011,	respectively.

2.Net	of	cash	collateral	received	or	posted	under	credit	support	agreements	and	reported	on	a	net-by-counterparty	basis	when	a	legal	right	of	setoff	exists	under	an	enforceable	netting	agreement.

3.Primarily	relates	to	the	fair	value	of	unfunded	lending	commitments	for	which	the	fair	value	option	was	elected.

# Gains and Losses from Market Making and Other Principal Transactions

The	table	below	presents,	by	major	product	type,	the	firm's	"Market	making" and	"Other	principal	transactions"	revenues.	These	gains/(losses)	are	primarily related	 to	 the	 firm's	 financial	 instruments	 owned,	 at	 fair	 value	 and	 financial instruments	sold,	but	not	yet	purchased,	at	fair	value,	including	both	derivative and	non-derivative	financial	 instruments.	These	 gains/(losses)	 exclude	 related interest	income	and	interest	expense.	See	Note	23	for	further	information	about interest	income	and	interest	expense.

The	gains/(losses)	in	the	table	are	not	representative	of	the	manner	in	which	the firm	manages	its	business	activities	because	many	of	the	firm's	market-making, client	 facilitation,	 and	 investing	 and	 lending	 strategies	 utilize	 financial instruments	across	various	product	types.	Accordingly,	gains	or	losses	in	one product	 type	 frequently	 offset	 gains	 or	 losses	 in	 other	 product	 types.	 For example,	most	of	the	firm's	longer-term	derivatives	are	sensitive	to	changes	in interest	 rates	 and	 may	 be	 economically	 hedged	 with	 interest	 rate	 swaps. Similarly,	a	significant	portion	of	the	firm's	cash	instruments	and	derivatives	has exposure	to	foreign	currencies	and	may	be	economically	hedged	with	foreign currency	contracts.

|  |  | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Interest\trates | \t$\t\t4,366 | \t$\t\t1,557 | \t$\t(2,042) |
| Credit | 5,506 | 2,715 | 8,679 |
| Currencies | (1,004) | 901 | 3,219 |
| Equities | 5,802 | 2,788 | 6,862 |
| Commodities | 575 | 1,588 | 1,567 |
| Other | 1,968^\t1 | 1,245 | 2,325 |
| Total | \t$17,213 | \t$10,794 | \t$20,610 |

1.Includes a gain of approximately $500	 million on the sale of the firm's hedge fund administration	business,	which	is	included	in	"Market	making"	revenues.

# Fair	Value	Measurements

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.	Financial	assets	are	marked	to	bid prices	 and	 financial	 liabilities	 are	 marked	 to	 offer	 prices.	 Fair	 value measurements	 do	 not	 include	 transaction	 costs.	 The	 firm	 measures	 certain financial	 assets	 and	 financial	 liabilities	 as	 a	 portfolio	 (i.e.,	 based	 on	 its	 net exposure	to	market	and/or	credit	risks).

The	best	evidence	of	fair	value	is	a	quoted	price	in	an	active	market.	If	quoted prices	in	active	markets	are	not	available,	fair	value	is	determined	by	reference	to prices	for	similar	instruments,	quoted	prices	or	recent	transactions	in	less	active markets,	 or	 internally	 developed	 models	 that	 primarily	 use	 market-based	 or independently	sourced	parameters	as	inputs	including,	but	not	limited	to,	interest rates,	 volatilities,	 equity	 or	 debt	 prices,	 foreign	 exchange	 rates,	 commodity prices,	 credit	 spreads	 and	 funding	 spreads	 (i.e.,	 the	 spread,	 or	 difference, between	the	interest	rate	at	which	a	borrower	could	finance	a	given	financial instrument	relative	to	a	benchmark	interest	rate).

U.S.	GAAP	has	a	three-level	fair	value	hierarchy	for	disclosure	of	fair	value measurements.	 The	 fair	 value	 hierarchy	 prioritizes	 inputs	 to	 the	 valuation techniques	 used	 to	 measure	 fair	 value,	 giving	 the	 highest	 priority	 to	 level	 1 inputs	and	the	lowest	priority	to	level	3	inputs.	A	financial	instrument's	level	in the	fair	value	hierarchy	is	based	on	the	lowest	level	of	input	that	is	significant	to its	fair	value	measurement.

The	fair	value	hierarchy	is	as	follows:

Level	1.	Inputs	are	unadjusted	quoted	prices	in	active	markets	to	which	the	firm had	access	at	the	measurement	date	for	identical,	unrestricted	assets	or	liabilities.

Level	2.	Inputs	to	valuation	techniques	are	observable,	either	directly	or indirectly.

Level	3.	One	or	more	inputs	to	valuation	techniques	are	significant	and unobservable.

The	fair	values	for	substantially	all	of	the	firm's	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.

See	Notes	6	and	7	for	further	information	about	fair	value	measurements	of	cash instruments	 and	 derivatives,	 respectively,	 included	 in	 "Financial	 instruments owned,	at	fair	value"	and	"Financial	instruments	sold,	but	not	yet	purchased,	at fair	value,"	and	Note	8	for	further	information	about	fair	value	measurements	of other	financial	assets	and	financial	liabilities	accounted	for	at	fair	value	under the	fair	value	option.

Financial	assets	and	financial	liabilities	accounted	for	at	fair	value	under	the	fair value	option	or	in	accordance	with	other	U.S.	GAAP	are	summarized	below.

|  | As	of	December |  |
| :--- | :--- | :--- |
| $\tin\tmillions | 2012 | 2011 |
| Total\tlevel\t1\tfinancial\tassets | \t$\t190,737 | \t$\t136,780 |
| Total\tlevel\t2\tfinancial\tassets | 502,293 | 587,416 |
| Total\tlevel\t3\tfinancial\tassets | 47,095 | 47,937 |
| Cash\tcollateral\tand\tcounterparty\tnetting\t^1 | (101,612) | (120,821) |
| Total\tfinancial\tassets\tat\tfair\tvalue | \t$\t638,513 | \t$\t651,312 |
| Total\tassets | \t$\t938,555 | \t$\t923,225 |
| Total\tlevel\t3\tfinancial\tassets\tas\ta\tpercentage\tof\tTotal\tassets | 5.0% | 5.2% |
| Total\tlevel\t3\tfinancial\tassets\tas\ta\tpercentage\tof\tTotal\tfinancial\tassets\tat\tfair\tvalue | 7.4% | 7.4% |
| Total\tlevel\t1\tfinancial\tliabilities | \t$\t\t\t65,994 | \t$\t\t\t75,557 |
| Total\tlevel\t2\tfinancial\tliabilities | 318,764 | 319,160 |
| Total\tlevel\t3\tfinancial\tliabilities | 25,679 | 25,498 |
| Cash\tcollateral\tand\tcounterparty\tnetting\t^1 | (32,760) | (31,546) |
| Total\tfinancial\tliabilities\tat\tfair\tvalue | \t$\t377,677 | \t$\t388,669 |
| Total\tlevel\t3\tfinancial\tliabilities\tas\ta\tpercentage\tof\tTotal\tfinancial\tliabilities\tat\tfair\tvalue | 6.8% | 6.6% |

1.Represents	the	impact	on	derivatives	of	cash	collateral	netting,	and	counterparty	netting	across	levels	of	the	fair	value	hierarchy.	Netting	among	positions	classified	in	the	same	level	is	included	in that	level.

Level 3 financial	 assets	 as	 of	 December	 2012	 decreased	 compared	 with December	2011,	primarily	reflecting	a	decrease	 in	derivative	assets,	partially offset	by	an	increase	in	private	equity	investments.	The	decrease	in	derivative assets	primarily	reflected	a	decline	in	credit	derivative	assets,	principally	due	to settlements,	unrealized	 losses	and	sales,	partially	offset	by	net	 transfers	from level 2. Level 3 currency	 derivative	 assets	 also	 declined	 compared	 with December	2011,	principally	due	to	unrealized	losses	and	net	transfers	to	level	2. The	 increase	 in	 private	 equity	 investments	 primarily	 reflected	 purchases	 and unrealized	gains,	partially	offset	by	settlements	and	net	transfers	to	level	2.

See	Notes	6,	7	and	8	for	further	 information	about	 level	3	cash	 instruments, derivatives	and	other	financial	assets	and	financial	liabilities	accounted	for	at fair	value	under	the	fair	value	option,	respectively,	including	information	about significant	unrealized	gains	and	losses,	and	transfers	in	and	out	of	level	3.

# Cash	Instruments

Cash	instruments	include	U.S.	government	and	federal	agency	obligations,	non- U.S.	government	and	agency	obligations,	bank	loans	and	bridge	loans,	corporate debt	 securities,	 equities	 and	 convertible	 debentures,	 and	 other	 non-derivative financial	 instruments	 owned	 and	 financial	 instruments	 sold,	 but	 not	 yet purchased.	See	below	for	the	types	of	cash	instruments	included	in	each	level	of the	fair	value	hierarchy	and	the	valuation	techniques	and	significant	inputs	used to	determine	their	fair	values.	See	Note	5	for	an	overview	of	the	firm's	fair	value measurement	policies.

# Level	1	Cash	Instruments

Level	1	cash	instruments	include	U.S.	government	obligations	and	most	non- U.S.	government	obligations,	actively	traded	listed	equities,	certain	government agency	obligations	and	money	market	instruments.	These	instruments	are	valued using	quoted	prices	for	identical	unrestricted	instruments	in	active	markets.

The	firm	defines	active	markets	for	equity	 instruments	based	on	 the	average daily	 trading	 volume	 both	 in	 absolute	 terms	 and	 relative	 to	 the	 market capitalization	 for	 the	 instrument.	 The	 firm	 defines	 active	 markets	 for	 debt instruments	based	on	both	the	average	daily	trading	volume	and	the	number	of days	with	trading	activity.

Level	2	cash	instruments	include	commercial	paper,	certificates	of	deposit,	time deposits,	 most	 government	 agency	 obligations,	 certain	 non-U.S.	 government obligations,	 most	 corporate	 debt	 securities,	 commodities,	 certain	 mortgage- backed	loans	and	securities,	certain	bank	loans	and	bridge	loans,	restricted	or less	 liquid	 listed	 equities,	 most	 state	 and	 municipal	 obligations	 and	 certain lending	commitments.

Valuations	of	level	2	cash	instruments	can	be	verified	to	quoted	prices,	recent trading	activity	for	identical	or	similar	instruments,	broker	or	dealer	quotations	or alternative	 pricing	 sources	 with	 reasonable	 levels	 of	 price	 transparency. Consideration	is	given	to	the	nature	of	the	quotations	(e.g.,	indicative	or	firm) and	 the	 relationship	 of	 recent	 market	 activity	 to	 the	 prices	 provided	 from alternative	pricing	sources.

Valuation	adjustments	are	typically	made	to	level	2	cash	instruments	(i)	if	the cash	instrument	is	subject	to	transfer	restrictions	and/or	(ii)	for	other	premiums and	liquidity	discounts	that	a	market	participant	would	require	to	arrive	at	fair value.	Valuation	adjustments	are	generally	based	on	market	evidence.

Level	3	cash	instruments	have	one	or	more	significant	valuation	inputs	that	are not	observable.	Absent	evidence	to	the	contrary,	level	3	cash	instruments	are initially	valued	at	transaction	price,	which	is	considered	to	be	the	best	initial estimate	 of	 fair	 value.	 Subsequently,	 the	 firm	 uses	 other	 methodologies	 to determine	fair	value,	which	vary	based	on	 the	 type	of	 instrument.	Valuation inputs	 and	 assumptions	 are	 changed	 when	 corroborated	 by	 substantive observable	evidence,	including	values	realized	on	sales	of	financial	assets.

The	table	below	presents	the	valuation	techniques	and	the	nature	of	significant inputs	generally	used	to	determine	the

fair	values	of	each	type	of	level	3	cash	instrument.

Significant	inputs	are	generally	determined	based	on	relative	value	analyses,	which	incorporate	comparisons	both	to	prices	of	credit	default	swaps	that reference	the	same	or	similar	underlying	instrument	or	entity	and	to	other	debt	instruments	for	the	same	issuer	for	which	observable	prices	or	broker quotations	are	available.	Significant	inputs	include:

Ÿ				Market	yields	implied	by	transactions	of	similar	or	related	assets	and/or	current	levels	and	trends	of	market	indices	such	as	CDX	and	LCDX (indices	that	track	the	performance	of	corporate	credit	and	loans,	respectively)

Ÿ				Industry	multiples	(primarily	EBITDA	multiples)	and	public	comparables

Ÿ				Transactions	in	similar	instruments

Ÿ				Discounted	cash	flow	techniques

Ÿ				Third-party	appraisals

The	firm	also	considers	changes	in	the	outlook	for	the	relevant	industry	and	financial	performance	of	the	issuer	as	compared	to	projected	performance. Significant	inputs	include:

Ÿ				Market	and	transaction	multiples

Ÿ				Discount	rates,	long-term	growth	rates,	earnings	compound	annual	growth	rates	and	capitalization	rates

Ÿ				For	equity	instruments	with	debt-like	features:	market	yields	implied	by	transactions	of	similar	or	related	assets,	current	performance	and	recovery assumptions,	and	duration

# Significant	Unobservable	Inputs

The	table	below	presents	the	ranges	of	significant	unobservable	inputs	used	to value	the	firm's	level	3	cash	instruments.	These	ranges	represent	the	significant unobservable	 inputs	 that	 were	 used	 in	 the	 valuation	 of	 each	 type	 of	 cash instrument.	 The	 ranges	 and	 weighted	 averages	 of	 these	 inputs	 are	 not representative	of	the	appropriate	inputs	to	use	when	calculating	the	fair	value	of any	one	cash	instrument.	For	example,	the	highest	multiple	presented	in

the	 table	 for	 private	 equity	 investments	 is	 appropriate	 for	 valuing	 a	 specific private	 equity	 investment	 but	 may	 not	 be	 appropriate	 for	 valuing	 any	 other private	equity	investment.	Accordingly,	the	ranges	of	inputs	presented	below	do not	represent	uncertainty	in,	or	possible	ranges	of,	fair	value	measurements	of the	firm's	level	3	cash	instruments.

1.Weighted	averages	are	calculated	by	weighting	each	input	by	the	relative	fair	value	of	the	respective	financial	instruments.

2.The	fair	value	of	any	one	instrument	may	be	determined	using	multiple	valuation	techniques.	For	example,	market	comparables	and	discounted	cash	flows	may	be	used	together	to	determine	fair value.	Therefore,	the	level	3	balance	encompasses	both	of	these	techniques.

3.Recovery	rate	is	a	measure	of	expected	future	cash	flows	in	a	default	scenario,	expressed	as	a	percentage	of	notional	or	face	value	of	the	instrument,	and	reflects	the	benefit	of	credit	enhancement on	certain	instruments.

4.Duration	is	an	estimate	of	the	timing	of	future	cash	flows	and,	in	certain	cases,	may	incorporate	the	impact	of	other	unobservable	inputs	(e.g.,	prepayment	speeds).

Increases	in	yield,	discount	rate,	capitalization	rate,	duration	or	cumulative	loss rate	used	in	the	valuation	of	the	firm's	level	3	cash	instruments	would	result	in	a lower	fair	value	measurement,	while	increases	in	recovery	rate,	basis,	multiples, long-term	growth	rate	or	compound	annual

growth	 rate	 would	 result	 in	 a	 higher	 fair	 value	 measurement.	 Due	 to	 the distinctive	 nature	 of	 each	 of	 the	 firm's	 level 3 cash	 instruments,	 the interrelationship	of	inputs	is	not	necessarily	uniform	within	each	product	type.

# Fair	Value	of	Cash	Instruments	by	Level

The	 tables	 below	 present,	 by	 level	 within	 the	 fair	 value	 hierarchy,	 cash instrument	 assets	 and	 liabilities,	 at	 fair	 value.	 Cash	 instrument	 assets	 and liabilities	are	included	in

"Financial	instruments	owned,	at	fair	value"	and	"Financial	instruments	sold,	but not	yet	purchased,	at	fair	value,"	respectively.

|  |  | Cash	Instrument	Assets	at	Fair	Value	as	of	December	2012 | Cash	Instrument	Assets	at	Fair	Value	as	of	December	2012 | Cash	Instrument	Assets	at	Fair	Value	as	of	December	2012 | Cash	Instrument	Assets	at	Fair	Value	as	of	December	2012 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| in\tmillions |  | Level\t1 | Level\t2 | Level\t3 | Total |
| Commercial\tpaper,\tcertificates\tof\tdeposit,\ttime\tdeposits\tand\tother\nmoney\tmarket\tinstruments | Commercial\tpaper,\tcertificates\tof\tdeposit,\ttime\tdeposits\tand\tother\nmoney\tmarket\tinstruments | $\t\t\t\t2,155 | $\t\t\t\t3,902 | $\t\t\t\t\t\t\t\t— | $\t\t\t\t6,057 |
| U.S.\tgovernment\tand\tfederal\tagency\tobligations |  | 42,856 | 50,385 | — | 93,241 |
| Non-U.S.\tgovernment\tand\tagency\tobligations | Non-U.S.\tgovernment\tand\tagency\tobligations | 46,715 | 15,509 | 26 | 62,250 |
| Mortgage\tand\tother\tasset-backed\tloans\tand\tsecurities\nLoans\tand\tsecurities\tbacked\tby\tcommercial\treal\testate | 1: | — | 6,416 | 3,389 | 9,805 |
| Loans\tand\tsecurities\tbacked\tby\tresidential\treal\testate | Loans\tand\tsecurities\tbacked\tby\tresidential\treal\testate | — | 6,597 | 1,619 | 8,216 |
| Bank\tloans\tand\tbridge\tloans | Bank\tloans\tand\tbridge\tloans | — | 11,172 | 11,235 | 22,407 |
| Corporate\tdebt\tsecurities\t^2 |  | 111 | 18,049 | 2,821 | 20,981 |
| State\tand\tmunicipal\tobligations | State\tand\tmunicipal\tobligations | — | 1,858 | 619 | 2,477 |
| Other\tdebt\tobligations\t^2 |  | — | 1,066 | 1,185 | 2,251 |
| Equities\tand\tconvertible\tdebentures | Equities\tand\tconvertible\tdebentures | 72,875 | 8,724 | 14,855^\t3 | 96,454 |
| Commodities |  | — | 11,696 | — | 11,696 |
| Total | Total | $164,712 | $135,374 | $35,749 | $335,835 |

|  | Cash	Instrument	Liabilities	at	Fair	Value	as	of	December | 2012 |  |  |
| :--- | :--- | :--- | :--- | :--- |
| in\tmillions | Level\t1 | Level\t2 | Level\t3 | Total |
| U.S.\tgovernment\tand\tfederal\tagency\tobligations | $\t\t15,475 | $\t\t\t\t\t\t\t430 | $\t\t\t\t\t\t\t\t— | $\t\t15,905 |
| Non-U.S.\tgovernment\tand\tagency\tobligations | 31,011 | 1,350 | — | 32,361 |
| Mortgage\tand\tother\tasset-backed\tloans\tand\tsecurities:\nLoans\tand\tsecurities\tbacked\tby\tresidential\treal\testate | — | 4 | — | 4 |
| Bank\tloans\tand\tbridge\tloans | — | 1,143 | 636 | 1,779 |
| Corporate\tdebt\tsecurities | 28 | 5,731 | 2 | 5,761 |
| State\tand\tmunicipal\tobligations | — | 1 | — | 1 |
| Equities\tand\tconvertible\tdebentures | 19,416 | 986 | 4 | 20,406 |
| Total | $\t\t65,930 | $\t\t\t\t9,645 | $\t\t\t\t\t642 | $\t\t76,217 |
|  |  | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | 133 |

1.Includes	$489	million	and	$446	million	of	collateralized	debt	obligations	(CDOs)	backed	by	real	estate	in	level	2	and	level	3,	respectively.

2.Includes	$284	million	and	$1.76	billion	of	CDOs	and	collateralized	loan	obligations	(CLOs)	backed	by	corporate	obligations	in	level	2	and	level	3,	respectively.

3.Includes	$12.67	billion	of	private	equity	investments,	$1.58	billion	of	investments	in	real	estate	entities	and	$600	million	of	convertible	debentures.

1.Includes	$213	million	and	$595	million	of	CDOs	backed	by	real	estate	in	level	2	and	level	3,	respectively.

2.Includes	$403	million	and	$1.19	billion	of	CDOs	and	CLOs	backed	by	corporate	obligations	in	level	2	and	level	3,	respectively.

3.Includes	$12.07	billion	of	private	equity	investments,	$1.10	billion	of	investments	in	real	estate	entities	and	$497	million	of	convertible	debentures.

4.Includes	$27	million	of	CDOs	and	CLOs	backed	by	corporate	obligations	in	level	3.

# Transfers	Between	Levels	of	the	Fair	Value	Hierarchy

Transfers	between	levels	of	the	fair	value	hierarchy	are	reported	at	the	beginning of	 the	 reporting	 period	 in	 which	 they	 occur.	During	 the	 year	 ended December	2012,	transfers	into	level	2	from	level	1	of	cash	instruments	were $1.85 billion,	 including	 transfers	 of	 non-U.S.	 government	 obligations	 of $1.05	billion,	reflecting	the	level	of	market	activity	in	these	instruments,	and transfers	of	equity

securities	of	$806	million,	primarily	reflecting	the	impact	of	transfer	restrictions. Transfers	 into	 level	 1	 from	 level	 2	 of	 cash	 instruments	 were	 $302	 million, including	 transfers	 of	 non-U.S.	 government	 obligations	 of	 $180	 million, reflecting	 the	 level	 of	 market	 activity	 in	 these	 instruments,	 and	 transfers	 of equity	securities	of	$102	million,	where	the	firm	was	able	to	obtain	quoted	prices for	certain	actively	traded	instruments.

# Level	3	Rollforward

If	a	cash	instrument	asset	or	liability	was	transferred	to	level	3	during	a	reporting period,	its	entire	gain	or	loss	for	the	period	is	included	in	level	3.

Level	3	cash	instruments	are	frequently	economically	hedged	with	level	1	and level 2 cash	 instruments	 and/or	 level 1, level 2 or	 level 3 derivatives. Accordingly,	gains	or	losses	that	are	reported	in	level	3	can	be	partially	offset	by gains	or	losses	attributable	to	level	1	or	level	2	cash

instruments	and/or	level	1,	level	2	or	level	3	derivatives.	As	a	result,	gains	or losses	included	in	the	level	3	rollforward	below	do	not	necessarily	represent	the overall	impact	on	the	firm's	results	of	operations,	liquidity	or	capital	resources.

The	tables	below	present	changes	in	fair	value	for	all	cash	instrument	assets	and liabilities	categorized	as	level	3	as	of	the	end	of	the	year.

Level	3	Cash	Instrument	Assets	at	Fair	Value	for	the	Year	Ended	December	2012

|  |  | Net | relating	to |  |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Balance, | realized | instruments |  |  |  | Transfers | Transfers | Balance, |
|  | beginning | gains/ | still\theld\tat |  |  |  | into | out\tof | end\tof |
| in\tmillions | of\tyear | (losses) | year-end | \tPurchases^\t1 | Sales | \tSettlements | level\t3 | level\t3 | year |
| Non-U.S.\tgovernment\tand\tagency\tobligations | $\t\t\t\t\t148 | $\t\t\t\t\t\t\t\t2 | $\t\t\t\t(52) | $\t\t\t\t\t\t\t16 | \t$\t\t\t\t\t(40) | $\t\t\t\t\t(45) | $\t\t\t\t\t\t\t\t1 | $\t\t\t\t\t\t\t\t(4) | $\t\t\t\t\t\t\t26 |
| Mortgage\tand\tother\tasset-backed\tloans\tand\tsecurities:\nLoans\tand\tsecurities\tbacked\tby\tcommercial\treal\testate | 3,346 | 238 | 232 | 1,613 | (910) | (1,389) | 337 | (78) | 3,389 |
| Loans\tand\tsecurities\tbacked\tby\tresidential\treal\testate | 1,709 | 146 | 276 | 703 | (844) | (380) | 65 | (56) | 1,619 |
| Bank\tloans\tand\tbridge\tloans | 11,285 | 592 | 322 | 4,595 | (2,794) | (2,738) | 1,178 | (1,205) | 11,235 |
| Corporate\tdebt\tsecurities | 2,480 | 331 | 266 | 1,143 | (961) | (438) | 197 | (197) | 2,821 |
| State\tand\tmunicipal\tobligations | 599 | 26 | 2 | 96 | (90) | (22) | 8 | — | 619 |
| Other\tdebt\tobligations | 1,451 | 64 | (25) | 759 | (355) | (125) | 39 | (623)^\t2 | 1,185 |
| Equities\tand\tconvertible\tdebentures | 13,667 | 292 | 992 | 3,071 | (702) | (1,278) | 965 | (2,152) | 14,855 |
| Total | $34,685 | $1,691^\t3 | $2,013^\t3 | $11,996 | \t$(6,696) | $(6,415) | $2,790 | $(4,315) | $35,749 |

# Level	3	Cash	Instrument	Liabilities	at	Fair	Value	for	the	Year	Ended	December	2012

|  |  | Level	3	Cash	Instrument	Liabilities	at	Fair	Value	for	the	Year	Ended	December	2012 | Level	3	Cash	Instrument	Liabilities	at	Fair	Value	for	the	Year	Ended	December	2012 | Level	3	Cash	Instrument	Liabilities	at	Fair	Value	for	the	Year	Ended	December	2012 | Level	3	Cash	Instrument	Liabilities	at	Fair	Value	for	the	Year	Ended	December	2012 | Level	3	Cash	Instrument	Liabilities	at	Fair	Value	for	the	Year	Ended	December	2012 | Level	3	Cash	Instrument	Liabilities	at	Fair	Value	for	the	Year	Ended	December	2012 | Level	3	Cash	Instrument	Liabilities	at	Fair	Value	for	the	Year	Ended	December	2012 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Net\tunrealized |  |  |  |  |  |  |
|  |  |  | (gains)/losses |  |  |  |  |  |  |
|  |  | Net | relating\tto |  |  |  |  |  |  |
|  | Balance, | realized | instruments |  |  |  | Transfers | Transfers | Balance, |
|  | beginning | (gains)/ | still\theld\tat |  |  |  | into | out\tof | end\tof |
| in\tmillions | of\tyear | losses | year-end | \tPurchases^\t1 | Sales | \tSettlements | level\t3 | level\t3 | year |
| Total | $\t\t\t\t\t905 | $\t\t\t\t(19) | $\t\t\t\t(54) | $\t\t\t\t(530) | \t$\t\t\t\t366 | $\t\t\t\t\t\t45 | $\t\t\t\t\t63 | $\t\t\t(134) | $\t\t\t\t\t642 |

1.Includes	both	originations	and	secondary	market	purchases.

2.Primarily	reflects	transfers	related	to	the	firm's	reinsurance	business	of	level	3	other	debt	obligations	within	cash	instruments	at	fair	value	to	level	3	"Other	assets,"	within	other	financial	assets	at	fair value,	as	this	business	was	classified	as	held	for	sale	as	of	December	2012.	See	Note	8	for	further	information.

3.The	aggregate	amounts	include	approximately	$617	million,	$2.13	billion	and	$962	million	reported	in	"Market	making,"	"Other	principal	transactions"	and	"Interest	income,"	respectively.

The	net	unrealized	gain	on	level	3	cash	instruments	of	$2.07	billion	(reflecting $2.01	 billion	 on	 cash	 instrument	 assets	 and	 $54	 million	 on	 cash	 instrument liabilities)	for	the	year	ended	December	2012	primarily	consisted	of	gains	on private	 equity	 investments,	 mortgage	 and	 other	 asset-backed	 loans	 and securities,	bank	loans	and	bridge	loans,	and	corporate	debt	securities.	Unrealized gains	during	the	year	ended	December	2012	primarily	reflected	the	impact	of	an increase	in	global	equity	prices	and	tighter	credit	spreads.

Transfers	into	level	3	during	the	year	ended	December	2012	primarily	reflected transfers	from	level	2	of	certain	bank	loans	and	bridge	loans,	and	private	equity investments,

principally	due	to	a	lack	of	market	transactions	in	these	instruments.

Transfers	 out	 of	 level 3 during	 the	 year	 ended	 December	 2012	 primarily reflected	transfers	to	level	2	of	certain	private	equity	investments	and	bank	loans and	 bridge	 loans.	 Transfers	 of	 private	 equity	 investments	 to	 level	 2	 were principally	due	to	improved	transparency	of	market	prices	as	a	result	of	market transactions	in	these	instruments.	Transfers	of	bank	loans	and	bridge	loans	to level	 2	 were	 principally	 due	 to	 market	 transactions	 in	 these	 instruments	 and unobservable	inputs	no	longer	being	significant	to	the	valuation	of	certain	loans.

|  |  |  | gains/(losses) |  |  |  | Net |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Net | relating\tto |  |  |  | transfers |  |
|  | Balance, | realized | instruments |  |  |  | in\tand/or | Balance, |
|  | beginning | gains/ | still\theld\tat |  |  |  | (out)\tof | end\tof |
| in\tmillions | of\tyear | (losses) | year-end | \tPurchases^\t1 | Sales\t\t\t \tSettlements | Sales\t\t\t \tSettlements | level\t3 | year |
| Non-U.S.\tgovernment\tobligations | $\t\t\t\t\t\t\t\t— | $\t\t\t\t\t25 | $\t\t(63) | $\t\t\t\t\t\t\t\t27 | \t$\t\t\t(123) | $\t\t\t\t\t\t\t\t(8) | $\t\t\t290 | \t $\t\t\t\t\t148 |
| Mortgage\tand\tother\tasset-backed\tloans\tand\tsecurities:\nLoans\tand\tsecurities\tbacked\tby\tcommercial\treal\testate | 3,976 | 222 | 80 | 1,099 | (1,124) | (831) | (76) | 3,346 |
| Loans\tand\tsecurities\tbacked\tby\tresidential\treal\testate | 2,501 | 253 | (81) | 768 | (702) | (456) | (574) | 1,709 |
| Bank\tloans\tand\tbridge\tloans | 9,905 | 540 | (216) | 6,725 | (2,329) | (1,554) | (1,786) | 11,285 |
| Corporate\tdebt\tsecurities | 2,737 | 391 | (132) | 1,319 | (1,137) | (697) | (1) | 2,480 |
| State\tand\tmunicipal\tobligations | 754 | 12 | (1) | 448 | (591) | (13) | (10) | 599 |
| Other\tdebt\tobligations | 1,274 | 124 | (17) | 560 | (388) | (212) | 110 | 1,451 |
| Equities\tand\tconvertible\tdebentures | 11,060 | 240 | 338 | 2,731 | (1,196) | (855) | 1,349 | 13,667 |
| Total | $32,207 | $1,807^\t2 | $\t\t(92)^\t2 | $13,677 | \t$(7,590) | $(4,626) | $\t\t(698) | \t $34,685 |

2.The	aggregate	amounts	include	approximately	$(202)	million,	$623	million	and	$1.29	billion	reported	in	"Market	making,"	"Other	principal	transactions"	and	"Interest	income,"	respectively.

The	net	unrealized	loss	on	level	3	cash	instruments	of	$310	million	(reflecting losses	 of	 $92	 million	 on	 cash	 instrument	 assets	 and	 $218	 million	 on	 cash instrument	liabilities)	for	the	year	ended	December	2011	primarily	consisted	of losses	on	bank	loans	and	bridge	loans	and	corporate	debt	securities,	primarily reflecting	the	impact	of	unfavorable	credit	markets	and	losses	on	relationship lending.	These	losses	were	partially	offset	by	gains	in	private	equity	investments, where	prices	were	generally	corroborated	through	market	transactions	in	similar financial	instruments	during	the	year.

Significant	transfers	in	or	out	of	level	3	during	the	year	ended	December	2011 included:

Ÿ	Bank	 loans	 and	 bridge	 loans:	 net	 transfer	 out	 of	 level	 3	 of	 $1.79	 billion, primarily	 due	 to	 transfers	 to	 level 2 of	 certain	 loans	 due	 to	 improved transparency	of	market	prices	as	a	result	of	market	transactions	in	these	or similar	loans,	partially	offset	by	transfers	to	level	3	of	other	loans	primarily due	to	reduced	transparency	of	market	prices	as	a	result	of	less	market	activity in	these	loans.

Ÿ	Equities	and	convertible	debentures:	net	transfer	into	level	3	of	$1.35	billion, primarily	due	to	transfers	to	level	3	of	certain	private	equity	investments	due	to reduced	transparency	of	market	prices	as	a	result	of	less	market	activity	in these	financial	 instruments,	partially	offset	by	 transfers	 to	 level	2	of	other private	equity	investments	due	to	improved	transparency	of	market	prices	as	a result	of	market	transactions	in	these	financial	instruments.

Ÿ	Loans	 and	 securities	 backed	 by	 residential	 real	 estate:	 net	 transfer	 out	 of level	3	of	$574	million,	principally	due	to	transfers	to	level	2	of	certain	loans due	to	improved	transparency	of	market	prices	used	to	value	these	loans,	as well	as	unobservable	inputs	no	longer	being	significant	to	the	valuation	of these	loans.

# Investments	in	Funds	That	Calculate	Net	Asset	Value	Per	Share

Cash	instruments	at	fair	value	include	investments	in	funds	that	are	valued	based on	the	net	asset	value	per	share	(NAV)	of	the	investment	fund.	The	firm	uses NAV	 as	 its	 measure	 of	 fair	 value	 for	 fund	 investments	 when	 (i)	 the	 fund investment	does	not	have	a	readily	determinable	fair	value	and	(ii)	the	NAV	of the	investment	fund	is	calculated	in	a	manner	consistent	with	the	measurement principles	 of	 investment	 company	 accounting,	 including	 measurement	 of	 the underlying	investments	at	fair	value.

The	 firm's	 investments	 in	 funds	 that	 calculate	 NAV	 primarily	 consist	 of investments	in	firm-sponsored	funds	where	the	firm	co-invests	with	third-party investors.	The	private	equity,	credit	and	real	estate	funds	are	primarily	closed- end	 funds	 in	 which	 the	 firm's	 investments	 are	 not	 eligible	 for	 redemption. Distributions	 will	 be	 received	 from	 these	 funds	 as	 the	 underlying	 assets	 are liquidated	and	it	is	estimated	that	substantially	all	of	the	underlying	assets	of

existing	funds	will	be	liquidated	over	the	next	seven	years.	The	firm	continues	to manage	its	existing	funds	taking	into	account	the	transition	periods	under	the Volcker	 Rule	 of	 the	 U.S.	 Dodd-Frank	 Wall	 Street	 Reform	 and	 Consumer Protection	Act	(Dodd-Frank	Act),	although	the	rules	have	not	yet	been	finalized.

The	firm's	investments	in	hedge	funds	are	generally	redeemable	on	a	quarterly basis	with	91	days'	notice,	subject	to	a	maximum	redemption	level	of	25%	of	the firm's	initial	investments	at	any	quarter-end.	The	firm	currently	plans	to	comply with	the	Volcker	Rule	by	redeeming	certain	of	its	interests	in	hedge	funds.	The firm	 redeemed	 approximately	 $1.06	 billion	 of	 these	 interests	 in	 hedge	 funds during	the	year	ended	December	2012.

The	 table	 below	 presents	 the	 fair	 value	 of	 the firm's investments in, and unfunded	commitments	to,	funds	that	calculate	NAV.

|  | As	of	December	2012 |  | As	of	December	2011 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Fair\tValue\tof | Unfunded | Fair\tValue\tof | Unfunded |
| in\tmillions | Investments | Commitments | Investments | Commitments |
| Private\tequity\tfunds\t^1 | $\t\t7,680 | $2,778 | $\t\t8,074 | $3,514 |
| Credit\tfunds\t^2 | 3,927 | 2,843 | 3,596 | 3,568 |
| Hedge\tfunds\t^3 | 2,167 | — | 3,165 | — |
| Real\testate\tfunds\t^4 | 2,006 | 870 | 1,531 | 1,613 |
| Total | $15,780 | $6,491 | $16,366 | $8,695 |

1.These	funds	primarily	invest	in	a	broad	range	of	industries	worldwide	in	a	variety	of	situations,	including	leveraged	buyouts,	recapitalizations	and	growth	investments.

2.These funds	generally	 invest	 in	 loans	and	other	 fixed	 income	 instruments	and	are	 focused	on	providing	private	high-yield	capital	 for	mid-	 to	 large-sized leveraged	and	management	buyout transactions,	recapitalizations,	financings,	refinancings,	acquisitions	and	restructurings	for	private	equity	firms,	private	family	companies	and	corporate	issuers.

3.These	funds	are	primarily	multi-disciplinary	hedge	funds	that	employ	a	fundamental	bottom-up	investment	approach	across	various	asset	classes	and	strategies	including	long/short	equity,	credit, convertibles,	risk	arbitrage,	special	situations	and	capital	structure	arbitrage.

4.These	funds	invest	globally,	primarily	in	real	estate	companies,	loan	portfolios,	debt	recapitalizations	and	direct	property.

# Derivatives	and	Hedging	Activities

# Derivative	Activities

Derivatives	are	instruments	that	derive	their	value	from	underlying	asset	prices, indices,	 reference	 rates	 and	 other	 inputs,	 or	 a	 combination	 of	 these	 factors. Derivatives	may	be	privately	negotiated	contracts,	which	are	usually	referred	to as	over-the-counter	(OTC)	derivatives,	or	they	may	be	listed	and	traded	on	an exchange	(exchange-traded).

Market-Making.	As	a	market	maker,	the	firm	enters	into	derivative	transactions to	provide	 liquidity	and	 to	facilitate	 the	 transfer	and	hedging	of	risk.	In	 this capacity,	 the	 firm	 typically	 acts	 as	 principal	 and	 is	 consequently	 required	 to commit	 capital	 to	 provide	 execution.	 As	 a	 market	 maker,	 it	 is	 essential	 to maintain	an	inventory	of	financial	instruments	sufficient	to	meet	expected	client and	market	demands.

Risk	Management.	The	firm	also	enters	into	derivatives	to	actively	manage risk	 exposures	 that	 arise	 from	 market-making	 and	 investing	 and	 lending activities	in	derivative	and	cash	instruments.	The	firm's	holdings	and	exposures are	hedged,	in	many	cases,	on	either	a	portfolio	or	risk-specific	basis,	as	opposed to	an	 instrument-by-instrument	basis.	The	offsetting	 impact	of	 this	economic hedging	is	reflected	in	the	same	business	segment	as	the	related	revenues.	In addition,	the	firm	may	enter	into	derivatives	designated	as	hedges	under	U.S. GAAP.	These	derivatives	are	used	to	manage	foreign	currency	exposure	on	the net	 investment	 in	 certain	 non-U.S.	 operations	 and	 to	 manage	 interest	 rate exposure	in	certain	fixed-rate	unsecured	long-term	and	short-term	borrowings, and	deposits.

The	firm	enters	into	various	types	of	derivatives,	including:

Ÿ	Futures	and	Forwards.	Contracts	that	commit	counterparties	to	purchase or	sell	financial	instruments,	commodities	or	currencies	in	the	future.

Ÿ	Swaps.	Contracts	that	require	counterparties	to	exchange	cash	flows	such	as currency	or	interest	payment	streams.	The	amounts	exchanged	are	based	on	the specific	 terms	 of	 the	 contract	 with	 reference	 to	 specified	 rates,	 financial instruments,	commodities,	currencies	or	indices.

Ÿ	Options.	Contracts	in	which	the	option	purchaser	has	the	right,	but	not	the obligation,	to	purchase	from	or	sell	to	the	option	writer	financial	instruments, commodities	or	currencies	within	a	defined	time	period	for	a	specified	price.

Derivatives	are	accounted	for	at	fair	value,	net	of	cash	collateral	received	or posted	under	credit	support	agreements.	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.	Derivative	assets	and	liabilities	are	included	in "Financial	instruments	owned,	at	fair	value"	and	"Financial	instruments	sold,	but not	yet	purchased,	at	fair	value,"	respectively.

Substantially	all	gains	and	losses	on	derivatives	not	designated	as	hedges	under ASC	815	are	included	in	"Market	making"	and	"Other	principal	transactions."

The	table	below	presents	the	fair	value	of	derivatives	on	a	net-by-counterparty	basis.

|  | As	of	December	2012 |  | As	of	December	2011 | As	of	December	2011 |
| :--- | :--- | :--- | :--- | :--- |
| in\tmillions | Derivative\nAssets | Derivative\nLiabilities | Derivative\nAssets | Derivative\nLiabilities |
| Exchange-traded | $\t\t\t3,772 | $\t\t2,937 | $\t\t5,880 | $\t\t3,172 |
| Over-the-counter | 67,404 | 47,490 | 74,148 | 55,281 |
| Total | $71,176 | $50,427 | $80,028 | $58,453 |

The	table	below	presents	the	fair	value	and	the	notional	amount	of	derivative contracts	by	major	product	type	on	a	gross	basis.	Gross	fair	values	in	the	table below	exclude	the	effects	of	both	netting	of	receivable	balances	with	payable balances	under	enforceable	netting	agreements,	and	netting	of	cash	collateral received	or	posted	under	credit	support

agreements,	and	therefore	are	not	representative	of	the	firm's	exposure.	Notional amounts,	which	represent	the	sum	of	gross	long	and	short	derivative	contracts, provide	an	indication	of	the	volume	of	the	firm's	derivative	activity;	however, they	do	not	represent	anticipated	losses.

|  |  | As	of	December	2012 |  |  | As	of	December	2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Derivative | Derivative | Notional | Derivative | Derivative | Notional |
| in\tmillions | Assets | Liabilities | Amount | Assets | Liabilities | Amount |
| Derivatives\tnot\taccounted\tfor\tas\thedges |  |  |  |  |  |  |
| Interest\trates | $\t584,584 | $\t545,605 | \t $34,891,763 | \t$\t624,189 | \t $\t582,608 | \t $38,111,097 |
| Credit | 85,816 | 74,927 | 3,615,757 | 150,816 | 130,659 | 4,032,330 |
| Currencies | 72,128 | 60,808 | 3,833,114 | 88,654 | 71,736 | 3,919,525 |
| Commodities | 23,320 | 24,350 | 774,115 | 35,966 | 38,050 | 799,925 |
| Equities | 49,483 | 43,681 | 1,202,181 | 64,135 | 51,928 | 1,433,087 |
| Subtotal | 815,331 | 749,371 | 44,316,930 | 963,760 | 874,981 | 48,295,964 |
| Derivatives\taccounted\tfor\tas\thedges |  |  |  |  |  |  |
| Interest\trates | 23,772 | 66 | 128,302 | 21,981 | 13 | 109,860 |
| Currencies | 21 | 86 | 8,452 | 124 | 21 | 8,307 |
| Subtotal | 23,793 | 152 | 136,754 | 22,105 | 34 | 118,167 |
| Gross\tfair\tvalue/notional\tamount\tof\tderivatives | $\t839,124 | $\t749,523 | \t $44,453,684 | \t$\t985,865 | \t $\t875,015 | \t $48,414,131 |
| Counterparty\tnetting\t^1 | (668,460) | (668,460) |  | (787,733) | (787,733) |  |
| Cash\tcollateral\tnetting\t^2 | (99,488) | (30,636) |  | (118,104) | (28,829) |  |
| Fair\tvalue\tincluded\tin\tfinancial\tinstruments\towned | $\t\t\t71,176 |  |  | \t$\t\t\t80,028 |  |  |
| Fair\tvalue\tincluded\tin\tfinancial\tinstruments\tsold,\nbut\tnot\tyet\tpurchased |  | $\t\t\t50,427 |  |  | \t $\t\t\t58,453 |  |
|  |  |  |  | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | 139 |

1.Represents	the	netting	of	receivable	balances	with	payable	balances	for	the	same	counterparty	under	enforceable	netting	agreements.

2.Represents	the	netting	of	cash	collateral	received	and	posted	on	a	counterparty	basis	under	credit	support	agreements.

# Valuation	Techniques	for	Derivatives

The	firm's	level	2	and	level	3	derivatives	are	valued	using	derivative	pricing models	(e.g.,	models	that	incorporate	option	pricing	methodologies,	Monte	Carlo simulations	and	discounted	cash	flows).	Price	transparency	of	derivatives	can generally	be	characterized	by	product	type.

Interest	Rate.	In	general,	the	prices	and	other	inputs	used	to	value	interest	rate derivatives	are	transparent,	even	for	long-dated	contracts.	Interest	rate	swaps	and options	 denominated	 in	 the	 currencies	 of	 leading	 industrialized	 nations	 are characterized	by	high	trading	volumes	and	tight	bid/offer	spreads.	Interest	rate derivatives	that	reference	indices,	such	as	an	inflation	index,	or	the	shape	of	the yield	curve	(e.g.,	10-year	swap	rate	vs.	2-year	swap	rate)	are	more	complex,	but the	prices	and	other	inputs	are	generally	observable.

Credit.	Price	transparency	for	credit	default	swaps,	including	both	single	names and	 baskets	 of	 credits,	 varies	 by	 market	 and	 underlying	 reference	 entity	 or obligation.	 Credit	 default	 swaps	 that	 reference	 indices,	 large	 corporates	 and major	 sovereigns	 generally	 exhibit	 the	 most	 price	 transparency.	 For	 credit default	swaps	with	other	underliers,	price	transparency	varies	based	on	credit rating,	 the	 cost	 of	 borrowing	 the	 underlying	 reference	 obligations,	 and	 the availability	of	the	underlying	reference	obligations	for	delivery	upon	the	default of	the	issuer.	Credit	default	swaps	that	reference	loans,	asset-backed	securities and	emerging	market	debt	instruments	tend	to	have	less	price	transparency	than those	 that	 reference	 corporate	 bonds.	 In	 addition,	 more	 complex	 credit derivatives,	 such	 as	 those	 sensitive	 to	 the	 correlation	 between	 two	 or	 more underlying	reference	obligations,	generally	have	less	price	transparency.

Currency.	Prices for	 currency	 derivatives	 based	 on	 the	 exchange	 rates	 of leading	industrialized	nations,	including	those	with	longer	tenors,	are	generally transparent.	The	primary	difference	between	the	price	transparency	of	developed and	emerging	market	currency	derivatives	is	that	emerging	markets	tend	to	be observable	for	contracts	with	shorter	tenors.

Commodity.	Commodity	derivatives	include	transactions	referenced	to	energy (e.g.,	oil	and	natural	gas),	metals	(e.g.,	precious	and	base)	and	soft	commodities (e.g.,	 agricultural).	 Price	 transparency	 varies	 based	 on	 the	 underlying commodity,	 delivery	 location,	 tenor	 and	 product	 quality	 (e.g.,	 diesel	 fuel compared	to	unleaded	gasoline).	In	general,	price	transparency	for	commodity derivatives	is	greater	for	contracts	with	shorter	tenors	and	contracts	that	are	more closely	aligned	with	major	and/or	benchmark	commodity	indices.

Equity.	Price	transparency	for	equity	derivatives	varies	by	market	and	underlier. Options	on	indices	and	the	common	stock	of	corporates	included	in	major	equity indices	exhibit	the	most	price	transparency.	Equity	derivatives	generally	have observable	 market	 prices,	 except	 for	 contracts	 with	 long	 tenors	 or	 reference prices	that	differ	significantly	from	current	market	prices.	More	complex	equity derivatives,	 such	 as	 those	 sensitive	 to	 the	 correlation	 between	 two	 or	 more individual	stocks,	generally	have	less	price	transparency.

Liquidity	is	essential	to	observability	of	all	product	types.	If	transaction	volumes decline,	 previously	 transparent	 prices	 and	 other	 inputs	 may	 become unobservable.	Conversely,	even	highly	structured	products	may	at	times	have trading	volumes	large	enough	to	provide	observability	of	prices	and	other	inputs. See	Note	5	for	an	overview	of	the	firm's	fair	value	measurement	policies.

# Level	1	Derivatives

Level	1	derivatives	include	short-term	contracts	for	future	delivery	of	securities when	 the	 underlying	 security	 is	 a	 level	 1	 instrument,	 and	 exchange-traded derivatives	 if	 they	 are	 actively	 traded	 and	 are	 valued	 at	 their	 quoted market	price.

Level	2	derivatives	include	OTC	derivatives	for	which	all	significant	valuation inputs	are	corroborated	by	market	evidence	and	exchange-traded	derivatives	that are	 not	 actively	 traded	 and/or	 that	 are	 valued	 using	 models	 that	 calibrate	 to market-clearing	levels	of	OTC	derivatives.

The	 selection	 of	 a	 particular	 model	 to	 value	 a	 derivative	 depends	 on	 the contractual	terms	of	and	specific	risks	inherent	in	the	instrument,	as	well	as	the availability	of	pricing	information	in	the	market.	For	derivatives	that	trade	in liquid	 markets,	 model	 selection	 does	 not	 involve	 significant	 management judgment	because	outputs	of	models	can	be	calibrated	to	market-clearing	levels.

Valuation	models	require	a	variety	of	inputs,	including	contractual	terms,	market prices,	yield	curves,	credit	curves,	measures	of	volatility,	prepayment	rates,	loss severity	rates	and	correlations	of	such	inputs.	Inputs	to	the	valuations	of	level	2 derivatives	can	be	verified	to	market	transactions,	broker	or	dealer	quotations	or other	alternative	pricing	sources	with	reasonable	levels	of	price	transparency. Consideration	is	given	to	the	nature	of	the	quotations	(e.g.,	indicative	or	firm) and	 the	 relationship	 of	 recent	 market	 activity	 to	 the	 prices	 provided	 from alternative	pricing	sources.

Level	3	derivatives	are	valued	using	models	which	utilize	observable	level	1 and/or	level	2	inputs,	as	well	as	unobservable	level	3	inputs.

Ÿ	For	the	majority	of	the	firm's	interest	rate	and	currency	derivatives	classified within	level	3,	significant	unobservable	inputs	include	correlations	of	certain currencies	and	interest	rates	(e.g.,	the	correlation	between	Euro	inflation	and Euro	interest	rates)	and	specific	interest	rate	volatilities.

Ÿ	For	level	3	credit	derivatives,	significant	level	3	inputs	include	illiquid	credit spreads,	 which	 are	 unique	 to	 specific	 reference	 obligations	 and	 reference entities,	recovery	rates	and	certain	correlations	required	to	value	credit	and mortgage	 derivatives	 (e.g.,	 the	 likelihood	 of	 default	 of	 the	 underlying reference	obligation	relative	to	one	another).

Ÿ	For	 level	 3	 equity	 derivatives,	 significant	 level	 3	 inputs	 generally	 include equity	volatility	inputs	for	options	that	are	very	long-dated	and/or	have	strike prices	 that	 differ	 significantly	 from	 current	 market	 prices.	 In	 addition,	 the valuation	of	certain	structured	trades	requires	the	use	of	level	3	inputs	for	the correlation	of	the	price	performance	of	two	or	more	individual	stocks	or	the correlation	of	the	price	performance	for	a	basket	of	stocks	to	another	asset class	such	as	commodities.

Ÿ	For	 level 3 commodity	 derivatives,	 significant	 level 3 inputs	 include volatilities	for	options	with	strike	prices	that	differ	significantly	from	current market	prices	and	prices	or	spreads	for	certain	products	for	which	the	product quality	 or	 physical	 location	 of	 the	 commodity	 is	 not	 aligned	 with benchmark	indices.

Subsequent	to	the	initial	valuation	of	a	level	3	derivative,	the	firm	updates	the level	1	and	level	2	inputs	to	reflect	observable	market	changes	and	any	resulting gains	 and	 losses	 are	 recorded	 in	 level	 3.	 Level	 3	 inputs	 are	 changed	 when corroborated	by	evidence	such	as	similar	market	transactions,	third-party	pricing services	and/or	broker	or	dealer	quotations	or	other	empirical	market	data.	In circumstances	 where	 the	 firm	 cannot	 verify	 the	 model	 value	 by	 reference	 to market	transactions,	it	is	possible	that	a	different	valuation	model	could	produce a	materially	different	estimate	of	fair	value.	See	below	for	further	information about	unobservable	inputs	used	in	the	valuation	of	level	3	derivatives.

# Valuation	Adjustments

Valuation	adjustments	are	integral	to	determining	the	fair	value	of	derivatives and	are	used	to	adjust	the	mid-market	valuations,	produced	by	derivative	pricing models,	to	the	appropriate	exit	price	valuation.	These	adjustments	incorporate bid/offer	spreads,	the	cost	of	liquidity,	credit	valuation	adjustments	(CVA)	and funding	valuation	adjustments,	which	account	for	 the	credit	and	funding	risk inherent	in	derivative	portfolios.	Market-based	inputs	are	generally	used	when calibrating	valuation	adjustments	to	market-clearing	levels.

In	addition,	for	derivatives	that	include	significant	unobservable	inputs,	the	firm makes	model	or	exit	price	adjustments	to	account	for	the	valuation	uncertainty present	in	the	transaction.

The	table	below	presents	the	ranges	of	significant	unobservable	inputs	used	to value	 the	 firm's	 level	 3	 derivatives.	 These	 ranges	 represent	 the	 significant unobservable	inputs	that	were	used	in	the	valuation	of	each	type	of	derivative. The	ranges,	averages	and	medians	of	these	inputs	are	not	representative	of	the appropriate	inputs	to	use	when	calculating	the	fair	value	of	any	one	derivative.

For	 example,	 the	 highest	 correlation	 presented	 in	 the	 table	 for	 interest	 rate derivatives	is	appropriate	for	valuing	a	specific	interest	rate	derivative	but	may not	be	appropriate	for	valuing	any	other	interest	rate	derivative.	Accordingly,	the ranges	of	 inputs	presented	below	do	not	represent	uncertainty	 in,	or	possible ranges	of,	fair	value	measurements	of	the	firm's	level	3	derivatives.

1.Averages	represent	the	arithmetic	average	of	the	inputs	and	are	not	weighted	by	the	relative	fair	value	or	notional	of	the	respective	financial	instruments.	An	average	greater	than	the	median indicates	that	the	majority	of	inputs	are	below	the	average.

2.The	range	of	unobservable	inputs	for	correlation	across	derivative	product	types	(i.e.,	cross-asset	correlation)	was	(51)%	to	66%	(Average:	30%	/	Median:	35%)	as	of	December	2012.

3.The	difference	between	the	average	and	the	median	for	the	credit	spreads	input	indicates	that	the	majority	of	the	inputs	fall	in	the	lower	end	of	the	range.

# Range	of	Significant	Unobservable	Inputs

The	following	provides	further	 information	about	 the	ranges	of	unobservable inputs	used	to	value	the	firm's	level	3	derivative	instruments.

Ÿ	Correlation:	Ranges	for	correlation	cover	a	variety	of	underliers	both	within one	 market	 (e.g.,	 equity	 index	 and	 equity	 single	 stock	 names)	 and	 across markets	(e.g.,	correlation	of	a	commodity	price	and	a	foreign	exchange	rate), as	well	as	across	regions.	Generally,	cross-asset	correlation	inputs	are	used	to value	 more	 complex	 instruments	 and	 are	 lower	 than	 correlation	 inputs	 on assets	within	the	same	derivative	product	type.

Ÿ	Volatility:	Ranges	for	volatility	cover	numerous	underliers	across	a	variety	of markets,	maturities	and	strike	prices.	For	example,	volatility	of	equity	indices is	generally	lower	than	volatility	of	single	stocks.

Ÿ	Credit	spreads	and	recovery	rates:	The	ranges	for	credit	spreads	and	recovery rates	cover	a	variety	of	underliers	(index	and	single	names),	regions,	sectors, maturities	and	credit	qualities	(high-yield	and	investment-grade).	The	broad range	 of	 this	 population	 gives	 rise	 to	 the	 width	 of	 the	 ranges	 of unobservable	inputs.

Ÿ	Commodity	prices	and	spreads:	The	ranges	for	commodity	prices	and	spreads cover	variability	in	products,	maturities	and	locations,	as	well	as	peak	and	off- peak	prices.

# Sensitivity	of	Fair	Value	Measurement	to	Changes	in	Significant Unobservable	Inputs

The	following	provides	a	description	of	the	directional	sensitivity	of	the	firm's level	3	fair	value	measurements	to	changes	in	significant	unobservable	inputs,	in isolation.	Due	to	the	distinctive	nature	of	each	of	the	firm's	level	3	derivatives, the	 interrelationship	 of	 inputs	 is	 not	 necessarily	 uniform	 within	 each product	type.

Ÿ	Correlation:	 In	 general,	 for	 contracts	 where	 the	 holder	 benefits	 from	 the convergence	of	the	underlying	asset	or	index	prices	(e.g.,	interest	rates,	credit spreads,	foreign	exchange	rates,	inflation	rates	and	equity	prices),	an	increase in	correlation	results	in	a	higher	fair	value	measurement.

Ÿ	Volatility:	In	general,	for	purchased	options	an	increase	in	volatility	results	in a	higher	fair	value	measurement.

Ÿ	Credit	spreads	and	recovery	rates:	In	general,	the	fair	value	of	purchased	credit protection	 increases	 as	 credit	 spreads	 increase	 or	 recovery	 rates	 decrease. Credit	spreads	and	recovery	rates	are	strongly	related	to	distinctive	risk	factors of	 the	 underlying	 reference	 obligations,	 which	 include	 reference	 entity- specific	factors	such	as	 leverage,	volatility	and	 industry,	market-based	risk factors,	 such	 as	 borrowing	 costs	 or	 liquidity	 of	 the	 underlying	 reference obligation,	and	macro-economic	conditions.

Ÿ	Commodity	prices	and	spreads:	In	general,	for	contracts	where	the	holder	is receiving	 a	 commodity,	 an	 increase	 in	 the	 spread	 (price	 difference	 from	 a benchmark	index	due	to	differences	in	quality	or	delivery	location)	or	price results	in	a	higher	fair	value	measurement.

# Fair	Value	of	Derivatives	by	Level

The	tables	below	present	the	fair	value	of	derivatives	on	a	gross	basis	by	level and	major	product	type.	Gross	fair	values	in	the	tables	below	exclude	the	effects of	both	netting	of	receivable	balances	with	payable	balances	under

enforceable	netting	agreements,	and	netting	of	cash	received	or	posted	under credit	support	agreements	both	in	and	across	levels	of	the	fair	value	hierarchy, and	therefore	are	not	representative	of	the	firm's	exposure.

3.Represents	the	netting	of	receivable	balances	with	payable	balances	for	the	same	counterparty	across	levels	of	the	fair	value	hierarchy	under	enforceable	netting	agreements.

If	a	derivative	was	transferred	to	level	3	during	a	reporting	period,	its	entire	gain or	loss	for	the	period	is	included	in	level	3.	Transfers	between	levels	are	reported at	the	beginning	of	the	reporting	period	in	which	they	occur.

Gains	and	losses	on	level	3	derivatives	should	be	considered	in	the	context	of the	following:

Ÿ	A	derivative	with	level	1	and/or	level	2	inputs	is	classified	in	level	3	in	its entirety	if	it	has	at	least	one	significant	level	3	input.

Ÿ	If	there	is	one	significant	level	3	input,	the	entire	gain	or	loss	from	adjusting only	observable	inputs	(i.e.,	level	1	and	level	2	inputs)	is	classified	as	level	3.

Ÿ	Gains	or	losses	that	have	been	reported	in	level	3	resulting	from	changes	in level	1	or	level	2	inputs	are	frequently	offset	by	gains	or	losses	attributable	to level 1 or	 level 2 derivatives	 and/or	 level 1, level 2 and level 3 cash instruments.	As	 a	 result,	 gains/(losses)	 included in the level	 3 rollforward below	do	not	necessarily	represent	the	overall	impact	on	the	firm's	results	of operations,	liquidity	or	capital	resources.

The	tables	below	present	changes	in	fair	value	for	all	derivatives	categorized	as level	3	as	of	the	end	of	the	year.

# Level	3	Derivative	Assets	and	Liabilities	at	Fair	Value	for	the	Year	Ended	December	2012

|  | Asset/ |  | gains/(losses) |  |  |  |  |  | Asset/ |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | (liability) | Net | relating\tto |  |  |  |  |  | (liability) |
|  | balance, | realized | instruments |  |  |  | Transfers | Transfers | balance, |
|  | beginning | gains/ | still\theld\tat |  |  |  | into | out\tof | end\tof |
| in\tmillions | of\tyear | (losses) | year-end | \tPurchases | Sales | \tSettlements | level\t3 | level\t3 | year |
| Interest\trates\t—\tnet | $\t\t(371) | $\t(60) | $\t\t\t\t\t\t19 | $\t\t\t\t7 | \t$\t\t\t\t\t(28) | $\t\t\t\t\t\t71 | $\t\t\t\t\t68 | $\t\t(61) | $\t\t(355) |
| Credit\t—\tnet | 6,300 | 246 | (701) | 138 | (270) | (1,597) | 2,503 | (391) | 6,228 |
| Currencies\t—\tnet | 842 | (17) | (502) | 17 | (5) | (144) | 65 | (221) | 35 |
| Commodities\t—\tnet | (605) | (11) | 228 | 63 | (410) | 307 | (41)^\t3 | 165^\t4 | (304) |
| Equities\t—\tnet | (432) | (80) | (276) | 123 | (724) | 267 | (50)^\t3 | (76) | (1,248) |
| Total\tderivatives\t—\tnet | $5,734 | $\t\t78^\t1 | $(1,232)^\t1,\t2 | $348 | \t$(1,437) | $(1,096) | $2,545 | $(584) | $4,356 |

1.The	aggregate	amounts	include	approximately	$(903)	million	and	$(251)	million	reported	in	"Market	making"	and	"Other	principal	transactions,"	respectively.

2.Principally	resulted	from	changes	in	level	2	inputs.

3.Reflects	a	net	transfer	to	level	3	of	derivative	liabilities.

The	net	unrealized	loss	on	level	3	derivatives	of	$1.23	billion	for	the	year	ended December	2012	was	primarily	attributable	to	the	impact	of	tighter	credit	spreads, changes	 in	 foreign	 exchange	 rates	 and	 increases	 in	 global	 equity	 prices	 on certain	derivatives,	partially	offset	by	the	impact	of	a	decline	in	volatility	on certain	commodity	derivatives.

Transfers	 into	 level 3 derivatives	 during	 the	 year	 ended	 December	 2012 primarily	 reflected	 transfers	 from	 level	 2	 of	 certain	 credit	 derivative	 assets, principally	due	to	unobservable	inputs	becoming	significant	to	the	valuation	of these	derivatives,	and	 transfers	from	 level	2	of	other	credit	derivative	assets, principally	 due	 to	 reduced	 transparency	 of	 correlation	 inputs	 used	 to	 value these	derivatives.

Transfers	 out	 of	 level	 3	 derivatives	 during the	 year	 ended	 December	 2012 primarily	 reflected	 transfers	 to	 level 2 of certain credit derivative assets, principally	 due	 to	 unobservable	 inputs	 no longer being significant to the valuation	of	these	derivatives,	transfers	to	level	2	of	certain	currency	derivative assets,	 principally	 due	 to	 unobservable	 correlation inputs no longer being significant	to	the	valuation	of	these	derivatives,	and	transfers	to	level	2	of	certain commodity	 derivative	 liabilities,	 principally	 due to increased transparency	 of volatility	inputs	used	to	value	these	derivatives.

|  | Asset/ |  | gains/(losses) |  |  |  | Net | Asset/ |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | (liability) | Net | relating\tto |  |  |  | transfers | (liability) |
|  | balance, | realized | instruments |  |  |  | in\tand/or | balance, |
|  | beginning | gains/ | still\theld\tat |  |  |  | (out)\tof | end\tof |
| in\tmillions | of\tyear | (losses) | year-end | \tPurchases | Sales | \tSettlements | level\t3 | year |
| Interest\trates\t—\tnet | $\t\t\t194 | $\t(38) | $\t\t(305) | $\t\t23 | \t$\t\t\t\t\t(29) | $\t\t\t\t\t\t84 | $(300) | $\t\t(371) |
| Credit\t—\tnet | 7,040 | 46 | 2,525 | 348 | (1,310) | (1,713) | (636) | 6,300 |
| Currencies\t—\tnet | 1,098 | (26) | (351) | 29 | (25) | (54) | 171 | 842 |
| Commodities\t—\tnet | 220 | (35) | 259 | 125 | (835) | 150 | (489) | (605) |
| Equities\t—\tnet | (990) | 184 | 151 | 382 | (683) | 159 | 365 | (432) |
| Total\tderivatives\t—\tnet | $7,562 | $131^\t1 | $2,279^\t1,\t2 | $907 | \t$(2,882) | $(1,374) | $(889) | $5,734 |

1.The	aggregate	amounts	include	approximately	$2.35	billion	and	$62	million	reported	in	"Market	making"	and	"Other	principal	transactions,"	respectively.

The	net	unrealized	gain	on	level	3	derivatives	of	$2.28	billion	for	the	year	ended December	2011	was	primarily	attributable	to	the	impact	of	changes	in	interest rates	and	exchange	rates	underlying	certain	credit	derivatives.	Unrealized	gains on	 level 3 derivatives	 were	 substantially	 offset	 by	 unrealized	 losses	 on derivatives	 classified	 within	 level	 2	 which	 economically	 hedge	 derivatives classified	within	level	3.

Significant	 transfers	 in	 or	 out	 of level	 3	 derivatives	 during the	 year	 ended December	2011	included:

Ÿ	Credit	—	net:	net	transfer	out	of	level	3	of	$636	million,	primarily	reflecting transfers	 to	 level	 2	 of	 certain	 credit	 derivative	 assets	 principally	 due	 to unobservable	 inputs	 no	 longer	 being	 significant	 to	 the	 valuation	 of	 these derivatives,	and	transfers	into	level	3	of	certain	credit	derivative	liabilities	due to	 reduced	 transparency	 of	 the	 correlation	 inputs	 used	 to	 value	 these derivatives.	The	impact	of	these	transfers	was	partially	offset	by	transfers	into level	 3	 of	 certain	 credit	 and	 mortgage	 derivative	 assets,	 primarily	 due	 to reduced	transparency	of	the	correlation	inputs	used	to	value	these	derivatives.

Ÿ	Commodities	—	net:	net	 transfer	out	of	 level	3	of	$489	million,	primarily reflecting	transfers	to	level	2,	due	to	increased	transparency	of	market	prices used	to	value	certain	commodity	derivative	assets	as	a	result	of	market	activity in	similar	instruments,	and	unobservable	inputs	becoming	less	significant	to the	 valuation	 of	 other	 commodity	 derivative	 assets.	 In	 addition,	 certain commodity	derivative	liabilities	were	transferred	into	level	3	due	to	reduced transparency	of	volatility	inputs	used	to	value	these	derivatives.

# Impact	of	Credit	Spreads	on	Derivatives

On	an	ongoing	basis,	 the	firm	realizes	gains	or losses	relating to	changes in credit	 risk	 through	 the	 unwind	 of	 derivative contracts and changes in credit	mitigants.

The	net	gain/(loss),	including	hedges,	attributable	to	the	impact	of	changes	in credit	exposure	and	credit	spreads	(counterparty	and	the	firm's)	on	derivatives was	 $(735)	 million, $573	 million and $68	 million for the years ended December	2012,	December	2011	and	December	2010,	respectively.

# Bifurcated	Embedded	Derivatives

The	table	below	presents	the	fair	value	and	the	notional	amount	of	derivatives that	 have	 been	 bifurcated	 from	 their related	 borrowings.	 These	 derivatives, which	are	recorded	at	fair	value,	primarily	consist	of	interest	rate,	equity	and commodity	products	and	are	included	in	"Unsecured	short-term	borrowings"	and "Unsecured	long-term	borrowings."	See	Note	8	for	further	information.

The	tables	below	present	the	fair	values	of	OTC	derivative	assets	and	liabilities by	tenor	and	by	product	type.	Tenor	is	based	on	expected	duration	for	mortgage- related	credit

derivatives and generally on remaining contractual maturity for other derivatives.

1.Represents	the	netting	of	receivable	balances	with	payable	balances	for	the	same	counterparty	across	product	types	within	a	tenor	category	under	enforceable	netting	agreements.	Receivable	and payable	balances	with	the	same	counterparty	in	the	same	product	type	and	tenor	category	are	netted	within	such	product	type	and	tenor	category.

2.Represents	the	netting	of	receivable	balances	with	payable	balances	for	the	same	counterparty	across	tenor	categories	under	enforceable	netting	agreements.

# Derivatives	with	Credit-Related	Contingent	Features

Certain	of	the	firm's	derivatives	have	been	transacted	under	bilateral	agreements with	counterparties	who	may	require	the	firm	to	post	collateral	or	terminate	the transactions	based	on	changes	in	the	firm's	credit	ratings.	The	firm	assesses	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.	The	table	below presents	 the	 aggregate	 fair	 value	 of	 net	 derivative	 liabilities	 under	 such agreements	(excluding	application	of	collateral	posted	to	reduce	these	liabilities), the	 related	 aggregate	 fair	 value	 of	 the	 assets	 posted	 as	 collateral,	 and	 the additional	collateral	or	termination	payments	that	could	have	been	called	at	the reporting	 date	 by	 counterparties	 in	 the	 event	 of	 a	 one-notch	 and	 two-notch downgrade	in	the	firm's	credit	ratings.

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Net\tderivative\tliabilities\tunder\tbilateral\tagreements | \t$27,885 | \t$35,066 |
| Collateral\tposted | 24,296 | 29,002 |
| Additional\tcollateral\tor\ttermination\tpayments\tfor\ta\tone-notch\ndowngrade | 1,534 | 1,303 |
| Additional\tcollateral\tor\ttermination\tpayments\tfor\ta\ttwo-notch\ndowngrade | 2,500 | 2,183 |

# Credit	Derivatives

The	firm	enters	into	a	broad	array	of	credit	derivatives	in	locations	around	the world	to	facilitate	client	transactions	and	to	manage	the	credit	risk	associated with	market-making	and	investing	and	lending	activities.	Credit	derivatives	are actively	managed	based	on	the	firm's	net	risk	position.

Credit	 derivatives	 are	 individually	 negotiated	 contracts	 and	 can	 have	 various settlement	 and	 payment	 conventions.	 Credit	 events	 include	 failure	 to	 pay, bankruptcy,	 acceleration	 of	 indebtedness,	 restructuring,	 repudiation	 and dissolution	of	the	reference	entity.

Credit	Default	Swaps.	Single-name	credit	default	swaps	protect	the	buyer against	the	loss	of	principal	on	one	or	more	bonds,	loans	or	mortgages	(reference obligations)	in	the	event	the	issuer	(reference	entity)	of	the	reference	obligations suffers	 a	 credit	 event.	 The	 buyer	 of	 protection	 pays	 an	 initial	 or	 periodic premium	to	the	seller	and	receives

protection	for	the	period	of	the	contract.	If	there	is	no	credit	event,	as	defined	in the	 contract,	 the	 seller	 of	 protection	 makes	 no	 payments	 to	 the	 buyer	 of protection.	However,	if	a	credit	event	occurs,	the	seller	of	protection	is	required to	make	a	payment	to	the	buyer	of	protection,	which	is	calculated	in	accordance with	the	terms	of	the	contract.

Credit	Indices,	Baskets	and	Tranches.	Credit	derivatives	may	reference	a basket	of	single-name	credit	default	swaps	or	a	broad-based	index.	If	a	credit event	occurs	in	one	of	the	underlying	reference	obligations,	the	protection	seller pays	 the	protection	buyer.	The	payment	 is	 typically	a	pro-rata	portion	of	 the transaction's	total	notional	amount	based	on	the	underlying	defaulted	reference obligation.	In	certain	transactions,	the	credit	risk	of	a	basket	or	index	is	separated into	various	portions	(tranches),	each	having	different	levels	of	subordination. The	 most	 junior	 tranches	 cover	 initial	 defaults	 and	 once	 losses	 exceed	 the notional	amount	of	these	junior	tranches,	any	excess	loss	is	covered	by	the	next most	senior	tranche	in	the	capital	structure.

Total	 Return	 Swaps.	 A total	 return	 swap	 transfers	 the	 risks	 relating	 to economic	performance	of	a	reference	obligation	from	the	protection	buyer	to	the protection	seller.	Typically,	 the	protection	buyer	receives	from	 the	protection seller	a	floating	rate	of	interest	and	protection	against	any	reduction	in	fair	value of	the	reference	obligation,	and	in	return	the	protection	seller	receives	the	cash flows	associated	with	the	reference	obligation,	plus	any	increase	in	the	fair	value of	the	reference	obligation.

Credit	Options.	In	a	credit	option,	the	option	writer	assumes	the	obligation	to purchase	or	sell	a	reference	obligation	at	a	specified	price	or	credit	spread.	The option	purchaser	buys	the	right,	but	does	not	assume	the	obligation,	to	sell	the reference	obligation	to,	or	purchase	it	from,	the	option	writer.	The	payments	on credit	options	depend	either	on	a	particular	credit	spread	or	 the	price	of	 the reference	obligation.

The	firm	economically	hedges	its	exposure	to	written	credit	derivatives	primarily by	 entering	 into	 offsetting	 purchased	 credit	 derivatives	 with	 identical underlyings.	 Substantially	 all	 of	 the	 firm's	 purchased	 credit	 derivative transactions	are	with	financial	institutions	and	are	subject	to	stringent	collateral thresholds.	In	addition,	upon	the	occurrence	of	a	specified	trigger	event,	the	firm may	take	possession	of	the	reference	obligations	underlying	a	particular	written credit	 derivative,	 and	 consequently	 may,	 upon	 liquidation	 of	 the	 reference obligations,	recover	amounts	on	the	underlying	reference	obligations	in	the	event of	default.

As	of	December	2012,	written	and	purchased	credit	derivatives	had	total	gross notional	amounts	of	$1.76	trillion	and	$1.86	trillion,	respectively,	for	total	net notional	purchased	protection	of	$98.33	billion.	As	of	December	2011,	written and	 purchased	 credit	 derivatives	 had	 total	 gross	 notional	 amounts	 of $1.96	trillion	and	$2.08	trillion,	respectively,	for	total	net	notional	purchased protection	of	$116.93	billion.

The	 table	 below	 presents	 certain information	 about	 credit	 derivatives. In the table	below:

Ÿ	fair	 values	 exclude	 the	 effects	 of	 both	 netting	 of	 receivable	 balances	 with payable	balances	under	enforceable	netting	agreements,	and	netting	of	cash received	 or	 posted	 under	 credit	 support	 agreements,	 and	 therefore	 are	 not representative	of	the	firm's	credit	exposure;

Ÿ	tenor	is	based	on	expected	duration	for	mortgage-related	credit	derivatives	and on	remaining	contractual	maturity	for	other	credit	derivatives;	and

Ÿ	the	credit	spread	on	the	underlying,	together	with	the	tenor	of	the	contract,	are indicators	 of	 payment/performance	 risk.	 The	 firm	 is	 less	 likely	 to	 pay	 or otherwise	be	required	to	perform	where	the	credit	spread	and	the	tenor	are lower.

|  |  |  |  |  | Maximum	Payout/Notional | Maximum	Payout/Notional |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Maximum\tPayout/Notional\tAmount\nof\tWritten\tCredit\tDerivatives\tby\tTenor | Maximum\tPayout/Notional\tAmount\nof\tWritten\tCredit\tDerivatives\tby\tTenor | Maximum\tPayout/Notional\tAmount\nof\tWritten\tCredit\tDerivatives\tby\tTenor |  | Amount\tof\tPurchased\nCredit\tDerivatives | Amount\tof\tPurchased\nCredit\tDerivatives | Fair\tValue\tof\nWritten\tCredit\tDerivatives | Fair\tValue\tof\nWritten\tCredit\tDerivatives | Fair\tValue\tof\nWritten\tCredit\tDerivatives |
|  |  |  |  |  | Offsetting | Other |  |  |  |
|  |  |  | 5\tYears |  | Purchased | Purchased |  |  | Net |
|  | 0\t-\t12 | 1\t-\t5 | or |  | Credit | Credit |  |  | Asset/ |
| $\tin\tmillions | Months | Years | Greater | Total | Derivatives^\t1 | Derivatives^\t2 | Asset | Liability | (Liability) |
| As\tof\tDecember\t2012 |  |  |  |  |  |  |  |  |  |
| Credit\tspread\ton\tunderlying |  |  |  |  |  |  |  |  |  |
| (basis\tpoints) |  |  |  |  |  |  |  |  |  |
| 0\t-\t250 | \t$360,289 | \t$\t\t\t989,941 | \t$103,481 | \t$1,453,711 | \t$1,343,561 | $201,459 | \t$28,817 | \t$\t\t\t\t8,249 | \t$\t20,568 |
| 251\t-\t500 | 13,876 | 126,659 | 35,086 | 175,621 | 157,371 | 19,063 | 4,284 | 7,848 | (3,564) |
| 501\t-\t1,000 | 9,209 | 52,012 | 5,619 | 66,840 | 60,456 | 8,799 | 769 | 4,499 | (3,730) |
| Greater\tthan\t1,000 | 11,453 | 49,721 | 3,622 | 64,796 | 57,774 | 10,812 | 568 | 21,970 | (21,402) |
| Total | \t$394,827 | \t$1,218,333 | \t$147,808 | \t$1,760,968 | \t$1,619,162 | $240,133 | \t$34,438 | \t$\t\t42,566 | \t$\t\t(8,128) |
| As\tof\tDecember\t2011 |  |  |  |  |  |  |  |  |  |
| Credit\tspread\ton\tunderlying |  |  |  |  |  |  |  |  |  |
| (basis\tpoints) |  |  |  |  |  |  |  |  |  |
| 0\t-\t250 | \t$282,851 | \t$\t\t\t794,193 | \t$141,688 | \t$1,218,732 | \t$1,122,296 | $180,316 | \t$17,572 | \t$\t\t16,907 | \t$\t\t\t\t\t\t665 |
| 251\t-\t500 | 42,682 | 269,687 | 69,864 | 382,233 | 345,942 | 47,739 | 4,517 | 20,810 | (16,293) |
| 501\t-\t1,000 | 29,377 | 140,389 | 21,819 | 191,585 | 181,003 | 23,176 | 138 | 15,398 | (15,260) |
| Greater\tthan\t1,000 | 30,244 | 114,103 | 22,995 | 167,342 | 147,614 | 28,734 | 512 | 57,201 | (56,689) |
| Total | \t$385,154 | \t$1,318,372 | \t$256,366 | \t$1,959,892 | \t$1,796,855 | $279,965 | \t$22,739 | \t$110,316 | \t$(87,577) |

1.Offsetting	purchased	credit	derivatives	represent	the	notional	amount	of	purchased	credit	derivatives	to	the	extent	they	economically	hedge	written	credit	derivatives	with	identical	underlyings.

2.This	purchased	protection	represents	the	notional	amount	of	purchased	credit	derivatives	in	excess	of	the	notional	amount	included	in	"Offsetting	Purchased	Credit	Derivatives."

# Hedge	Accounting

The	firm	applies	hedge	accounting	for	(i)	certain	 interest	rate	swaps	used	 to manage	the	interest	rate	exposure	of	certain	fixed-rate	unsecured	long-term	and short-term	 borrowings	 and	 certain	 fixed-rate	 certificates	 of	 deposit	 and (ii)	certain	foreign	currency	forward	contracts	and	foreign	currency-denominated debt	used	to	manage	foreign	currency	exposures	on	the	firm's	net	investment	in certain	non-U.S.	operations.

To	qualify	for	hedge	accounting,	the	derivative	hedge	must	be	highly	effective	at reducing	the	risk	from	the	exposure	being	hedged.	Additionally,	the	firm	must formally	document	the	hedging	relationship	at	inception	and	test	the	hedging relationship	at	least	on	a	quarterly	basis	to	ensure	the	derivative	hedge	continues to	be	highly	effective	over	the	life	of	the	hedging	relationship.

# Interest	Rate	Hedges

The	 firm	 designates	 certain	 interest	 rate	 swaps	 as	 fair	 value	 hedges.	 These interest	 rate	 swaps	 hedge	 changes	 in	 fair	 value	 attributable	 to	 the	 relevant benchmark	 interest	 rate	 (e.g.,	 London	 Interbank	 Offered	 Rate	 (LIBOR)), effectively	 converting	 a	 substantial	 portion	 of	 fixed-rate	 obligations	 into floating-rate	obligations.

The	 firm	 applies	 a	 statistical	 method	 that	 utilizes	 regression	 analysis	 when assessing	the	effectiveness	of	its	fair	value	hedging	relationships	in	achieving offsetting	changes	in	the	fair	values	of	the	hedging	instrument	and	the	risk	being hedged	 (i.e.,	 interest	 rate	 risk).	 An	 interest	 rate	 swap	 is	 considered	 highly effective	in	offsetting	changes	in	fair	value	attributable	to	changes	in	the	hedged risk	when	the	regression	analysis	results	in	a	coefficient	of	determination	of	80% or	greater	and	a	slope	between	80%	and	125%.

For	qualifying	fair	value	hedges,	gains	or	losses	on	derivatives	are	included	in "Interest	expense."	The	change	in	fair	value	of	the	hedged	item	attributable	to	the risk	 being	 hedged	 is	 reported	 as	 an	 adjustment	 to	 its	 carrying	 value	 and	 is subsequently	amortized	into	interest	expense	over	its	remaining	life.	Gains	or losses	resulting	from	hedge	ineffectiveness	are	included	in	"Interest	expense." When	a	derivative	is	no	longer	designated	as	a	hedge,	any	remaining	difference between	the	carrying	value	and	par	value	of	the	hedged	item	is	amortized	to interest	expense	over	the	remaining	life	of	the	hedged	item	using	the	effective interest	method.	See	Note	23	for	further	information	about	interest	income	and interest	expense.

The	 table	 below	 presents	 the	 gains/(losses)	 from	 interest	 rate	 derivatives accounted	for	as	hedges,	the	related	hedged	borrowings	and	bank	deposits,	and the	hedge	ineffectiveness	on	these	derivatives.

|  | Year	Ended	December | Year	Ended	December | Year	Ended	December |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Interest\trate\thedges | \t$(2,383) | \t$\t4,679 | \t$\t1,617 |
| Hedged\tborrowings\tand\tbank\tdeposits | 665 | (6,300) | (3,447) |
| Hedge\tineffectiveness\t^1 | (1,718) | (1,621) | (1,836) |

1.Primarily	consisted	of	amortization	of	prepaid	credit	spreads	resulting	from	the	passage	of time.

The	gain/(loss)	excluded	from	the	assessment	of	hedge	effectiveness	was	not material	 for	 the	 years	 ended	 December	 2012,	 December	 2011	 and December	2010.

# Net	Investment	Hedges

The	firm	seeks	to	reduce	the	impact	of	fluctuations	in	foreign	exchange	rates	on its	 net	 investment	 in	 certain	 non-U.S.	 operations	 through	 the	 use	 of	 foreign currency	forward	contracts	and	foreign	currency-denominated	debt.	For	foreign currency	forward	contracts	designated	as	hedges,	the	effectiveness	of	the	hedge is	assessed	based	on	the	overall	changes	in	the	fair	value	of	the	forward	contracts (i.e.,	based	on	changes	in	forward	rates).	For	foreign	currency-denominated	debt designated	 as	 a	 hedge,	 the	 effectiveness	 of	 the	 hedge	 is	 assessed	 based	 on changes	in	spot	rates.

For	 qualifying	 net	 investment	 hedges,	 the	 gains	 or	 losses	 on	 the	 hedging instruments,	 to	 the	 extent	 effective,	 are	 included	 in	 "Currency	 translation adjustment, net of tax" within the consolidated statements of comprehensive	income.

The	table	below	presents	the	gains/(losses)	from	net	investment	hedging.

The	gain/(loss)	related	to	ineffectiveness	was	not	material	for	the	years	ended December	2012,	December	2011	and	December	2010.	The	loss	reclassified	to earnings	from	accumulated	other	comprehensive	income	was	not	material	for	the years	ended	December	2012	and	December	2010,	and	was	$186	million	for	the year	ended	December	2011.

As	of	December	2012	and	December	2011,	the	firm	had	designated	$2.77	billion and	$3.11	billion,	respectively,	of	foreign	currency-denominated	debt,	included in	"Unsecured	long-term	borrowings"	and	"Unsecured	short-term	borrowings," as	hedges	of	net	investments	in	non-U.S.	subsidiaries.

# Fair	Value	Option

# Other	Financial	Assets	and	Financial	Liabilities	at	Fair	Value

In	 addition	 to	 all	 cash	 and	 derivative	 instruments	 included	 in	 "Financial instruments	owned,	at	fair	value"	and	"Financial	instruments	sold,	but	not	yet purchased,	at	fair	value,"	the	firm	has	elected	to	account	for	certain	of	its	other financial	assets	and	financial	liabilities	at	fair	value	under	the	fair	value	option.

The	primary	reasons	for	electing	the	fair	value	option	are	to:

Ÿ	reflect	economic	events	in	earnings	on	a	timely	basis;

Ÿ	mitigate	 volatility	 in	 earnings	 from	 using	 different	 measurement	 attributes (e.g.,	transfers	of	financial	instruments	owned	accounted	for	as	financings	are recorded	at	fair	value	whereas	the	related	secured	financing	would	be	recorded on	an	accrual	basis	absent	electing	the	fair	value	option);	and

Ÿ	address	 simplification	 and	 cost-benefit	 considerations	 (e.g.,	 accounting	 for hybrid	financial	instruments	at	fair	value	in	their	entirety	versus	bifurcation	of embedded	derivatives	and	hedge	accounting	for	debt	hosts).

Hybrid	financial	instruments	are	instruments	that	contain	bifurcatable	embedded derivatives	and	do	not	require	settlement	by	physical	delivery	of	non-financial assets	(e.g.,	physical	commodities).	If	the	firm	elects	to	bifurcate	the	embedded derivative	from	the	associated	debt,	the	derivative	is	accounted	for	at	fair	value and	the	host	contract	is	accounted	for	at	amortized	cost,	adjusted	for	the	effective portion	of	any	fair	value	hedges.	If	the	firm	does	not	elect	to	bifurcate,	the	entire hybrid	financial	instrument	is	accounted	for	at	fair	value	under	the	fair	value option.

Other	financial	assets	and	financial	liabilities	accounted	for	at	fair	value	under the	fair	value	option	include:

Ÿ	repurchase	agreements	and	substantially	all	resale	agreements;

Ÿ	securities	 borrowed	 and	 loaned within Fixed Income, Currency and Commodities	Client	Execution;

Ÿ	substantially	 all	 other	 secured	 financings,	 including	 transfers	 of	 assets accounted	for	as	financings	rather	than	sales	and	certain	other	nonrecourse financings;

Ÿ	certain	unsecured	short-term	borrowings,	consisting	of	all	promissory	notes and	commercial	paper	and	certain	hybrid	financial	instruments;

Ÿ	certain	 unsecured	 long-term	 borrowings,	 including prepaid commodity transactions	and	certain	hybrid	financial	instruments;

Ÿ	certain	 receivables	 from	 customers	 and	 counterparties,	 including	 certain margin	loans	and	transfers	of	assets	accounted	for	as	secured	loans	rather	than purchases;

Ÿ	certain	 insurance	 and	 reinsurance	 contract	 assets	 and liabilities	 and	 certain guarantees;

# Ÿ	certain	subordinated	liabilities	issued	by	consolidated	VIEs;	and

Ÿ	certain	time	deposits	issued	by	the	firm's	bank	subsidiaries	(deposits	with	no stated	 maturity	 are	 not	 eligible	 for	 a	 fair	 value	 option	 election),	 including structured	certificates	of	deposit,	which	are	hybrid	financial	instruments.

These	financial	assets	and	financial	liabilities	at	fair	value	are	generally	valued based	 on	 discounted	 cash	 flow	 techniques,	 which	 incorporate	 inputs	 with reasonable	levels	of	price	transparency,	and	are	generally	classified	as	level	2 because	 the	 inputs	 are	 observable.	 Valuation	 adjustments	 may	 be	 made	 for liquidity	and	for	counterparty	and	the	firm's	credit	quality.

See	 below	 for	 information	 about	 the	 significant	 inputs	 used	 to	 value	 other financial	 assets	 and	 financial	 liabilities	 at	 fair	 value,	 including	 the	 ranges	 of significant	unobservable	inputs	used	to	value	the	level	3	instruments	within	these categories.	These	ranges	represent	the	significant	unobservable	inputs	that	were used	 in	 the	 valuation	 of	 each	 type	 of	 other	 financial	 assets	 and	 financial liabilities	at	fair	value.	The	ranges	and	weighted	averages	of	these	inputs	are	not representative	of	the	appropriate	inputs	to	use	when	calculating	the	fair	value	of any	one	instrument.	For	example,	the	highest	yield	presented	below	for	resale and	repurchase	agreements	is	appropriate	for	valuing	a	specific	agreement	in	that category	but	may	not	be	appropriate	for	valuing	any	other	agreements	in	that category.	Accordingly,	 the	 range	 of	 inputs	 presented	 below	 do	 not	 represent uncertainty	 in,	 or	 possible	 ranges	 of,	 fair	 value	 measurements	 of	 the	 firm's level	3	other	financial	assets	and	financial	liabilities.

Resale	and	Repurchase	Agreements	and	Securities	Borrowed	and Loaned.	 The significant	 inputs	 to	 the	 valuation	 of	 resale	 and	 repurchase agreements	and	securities	borrowed	and	loaned	are	collateral	funding	spreads, the	 amount	 and	 timing	 of	 expected	 future	 cash	 flows	 and	 interest	 rates.	The ranges	 of	 significant	 unobservable	 inputs	 used	 to	 value	 level	 3	 resale	 and repurchase	agreements	as	of	December	2012	are	as	follows:

Generally,	increases	in	yield	or	duration,	in	isolation,	would	result	in	a	lower	fair value	measurement.	Due	to	the	distinctive	nature	of	each	of	the	firm's	level	3 resale	 and	 repurchase	 agreements,	 the	 interrelationship	 of	 inputs	 is	 not necessarily	uniform	across	such	agreements.

See	Note	9	for	further	information	about	collateralized	agreements.

Other	Secured	Financings.	The	significant	inputs	to	the	valuation	of	other secured	financings	at	fair	value	are	the	amount	and	timing	of	expected	future cash	 flows,	 interest	 rates,	 collateral	 funding	 spreads,	 the	 fair	 value	 of	 the collateral	 delivered	 by	 the	 firm	 (which	 is	 determined	 using	 the	 amount	 and timing	of	expected	future	cash	flows,	market	prices,	market	yields	and	recovery assumptions)	 and	 the	 frequency	 of	 additional	 collateral	 calls.	The	 ranges	 of significant	unobservable	inputs	used	to	value	level	3	other	secured	financings	as of	December	2012	are	as	follows:

Generally,	increases	in	yield	or	duration,	in	isolation,	would	result	in	a	lower	fair value	measurement.	Due	to	the	distinctive	nature	of	each	of	the	firm's	level	3 other	 secured	 financings,	 the	 interrelationship	 of	 inputs	 is	 not	 necessarily uniform	across	such	financings.

See	Note	9	for	further	information	about	collateralized	financings.

Unsecured	 Short-term	 and	 Long-term	 Borrowings.	 The significant inputs	to	the	valuation	of	unsecured	short-term	and	long-term	borrowings	at	fair value	are	the	amount	and	timing	of	expected	future	cash	flows,	interest	rates,	the credit	spreads	of	the	firm,	as	well	as	commodity	prices	in	the	case	of	prepaid commodity	 transactions.	 The	 inputs	 used	 to	 value	 the	 embedded	 derivative component	of	hybrid	financial	instruments	are	consistent	with	the	inputs	used	to value	the	firm's	other	derivative	instruments.	See	Note	7	for	further	information about	derivatives.	See	Notes	15	and	16	for	further	information	about	unsecured short-term	and	long-term	borrowings,	respectively.

Certain	 of	 the	 firm's	 unsecured	 short-term	 and	 long-term	 instruments	 are included	in	level	3,	substantially	all	of	which	are	hybrid	financial	instruments. As	the	significant	unobservable	inputs	used	to	value	hybrid	financial	instruments primarily	 relate	 to	 the	 embedded	 derivative	 component	 of	 these	 borrowings, these	 inputs	 are	 incorporated	 in	 the	 firm's	 derivative	 disclosures	 related	 to unobservable	inputs	in	Note	7.

Insurance and Reinsurance Contracts. Insurance	 and	 reinsurance contracts	at	fair	value	are	primarily	included	in	"Receivables	from	customers and	counterparties"	and	"Other	liabilities	and	accrued	expenses."	In	addition, assets	related	to	the	firm's	reinsurance	business	that	were	classified	as	held	for sale	as	of	December	2012	are	 included	 in	"Other	assets."	The	 insurance	and reinsurance	contracts	for	which	the	firm	has	elected	the	fair	value	option	are contracts	that	can	be	settled	only	in	cash	and	that	qualify	for	the	fair	value	option because	they	are	recognized	financial	instruments.	These	contracts	are	valued using	market	transactions	and	other	market	evidence	where	possible,	including market-based	 inputs	 to	 models,	 calibration	 to	 market-clearing	 transactions	 or other	alternative	pricing	sources	with	reasonable	levels	of	price	transparency. Significant	inputs	are	interest	rates,	inflation	rates,	volatilities,	funding	spreads, yield	 and	 duration,	 which	 incorporates	 policy	 lapse	 and	 projected	 mortality assumptions.	When	unobservable	inputs	to	a	valuation	model	are	significant	to the	 fair	 value	 measurement	 of	 an	 instrument,	 the	 instrument	 is	 classified	 in level 3.	The range	 of	 significant	 unobservable	 inputs	 used	 to	 value	 level	 3 insurance	and	reinsurance	contracts	as	of	December	2012	is	as	follows:

Generally,	increases	in	funding	spreads,	yield	or	duration,	in	isolation,	would result	in	a	lower	fair	value	measurement.

Receivables from	 Customers	 and	 Counterparties.	 Receivables from customers	and	counterparties	at	fair	value,	excluding	insurance	and	reinsurance contracts,	are	primarily	comprised	of	transfers	of	assets	accounted	for	as	secured loans	 rather	 than	 purchases.	 The	 significant	 inputs	 to	 the	 valuation	 of	 such receivables	 are	 commodity	 prices,	 interest	 rates,	 the	 amount	 and	 timing	 of expected	 future	 cash	 flows	 and	 funding	 spreads.	 The	 range	 of	 significant unobservable	 inputs	 used	 to	 value	 level	 3	 receivables	 from	 customers	 and counterparties	as	of	December	2012	is	as	follows:

Generally,	 an increase in	 funding	 spreads	 would	 result in	 a lower	 fair	 value measurement.

Receivables	from	customers	and	counterparties	not	accounted	for	at	fair	value are	 accounted	 for	 at	 amortized	 cost	 net	 of	 estimated	 uncollectible	 amounts, which	 generally	 approximates	 fair	 value.	 Such	 receivables	 are	 primarily comprised	of	customer	margin	loans	and	collateral	posted	in	connection	with certain	 derivative	 transactions.	While	 these	 items	 are	 carried	 at	 amounts	 that approximate	fair	value,	they	are	not	accounted	for	at	fair	value	under	the	fair value	option	or	at	fair	value	in	accordance	with	other	U.S.	GAAP	and	therefore are	not	included	in	the	firm's	fair	value	hierarchy	in	Notes	6,	7	and	8.	Had	these items	been	included	in	the	firm's	fair	value	hierarchy,	substantially	all	would have	 been	 classified	 in	 level 2 as	 of	 December	 2012.	 Receivables	 from customers	and	counterparties	not	accounted	for	at	fair	value	also	includes	loans held	for	investment,	which	are	primarily	comprised	of	collateralized	 loans	 to private	wealth	management	clients	and	corporate	loans.	As	of	December	2012 and	December	2011,	 the	carrying	value	of	such	 loans	was	$6.50	billion	and $3.76	 billion,	 respectively,	 which	 generally	 approximated	 fair	 value.	 As	 of December	2012,	had	these	loans	been	carried	at	fair	value	and	included	in	the fair	value	hierarchy,	$2.41	billion	and	$4.06	billion	would	have	been	classified in	level	2	and	level	3,	respectively.

Deposits.	The	significant	inputs	to	the	valuation	of	time	deposits	are	interest rates	and	the	amount	and	timing	of	future	cash	flows.	The	inputs	used	to	value the	 embedded	 derivative	 component	 of	 hybrid	 financial	 instruments	 are consistent	with	the	inputs	used	to	value	the	firm's	other	derivative	instruments. See	Note	7	for	further	information	about	derivatives.	See	Note	14	for	further information	about	deposits.

The	firm's	deposits	that	are	included	in	level	3	are	hybrid	financial	instruments. As	the	significant	unobservable	inputs	used	to	value	hybrid	financial	instruments primarily	relate	to	the	embedded	derivative	component	of	these	deposits,	these inputs	 are	 incorporated	 in	 the	 firm's	 derivative	 disclosures	 related	 to unobservable	inputs	in	Note	7.

# Fair	Value	of	Other	Financial	Assets	and	Financial

# Liabilities	by	Level

The	tables	below	present,	by	level	within	the	fair	value	hierarchy,	other	financial assets	and	financial	liabilities accounted	for	at	fair	value	primarily	under	the	fair	value	option.

1.Includes	securities	segregated	for	regulatory	and	other	purposes	accounted	for	at	fair	value	under	the	fair	value	option,	which	consists	of	securities	borrowed	and	resale	agreements.	The	table above	includes	$21.55	billion	of	level	1	securities	segregated	for	regulatory	and	other	purposes	accounted	for	at	fair	value	under	other	U.S.	GAAP,	consisting	of	U.S.	Treasury	securities	and	money market	instruments.

2.Consists	of	assets	classified	as	held	for	sale	related	to	the	firm's	reinsurance	business,	primarily	consisting	of	securities	accounted	for	as	available-for-sale	and	insurance	separate	account	assets which	are	accounted	for	at	fair	value	under	other	U.S.	GAAP.	Such	assets	were	previously	included	in	"Financial	instruments	owned,	at	fair	value"	and	"Securities	segregated	for	regulatory	and	other purposes,"	respectively.

3.Consists	of	insurance	contracts	and	derivatives	classified	as	held	for	sale.	See	"Insurance	and	Reinsurance	Contracts"	above	and	Note	7	for	further	information	about	valuation	techniques	and	inputs related	to	insurance	contracts	and	derivatives,	respectively.

4.Includes	$692	million	of	liabilities	classified	as	held	for	sale	related	to	the	firm's	reinsurance	business	accounted	for	at	fair	value	under	the	fair	value	option.

|  | Other	Financial	Assets	at	Fair	Value	as	of	December	2011 | Other	Financial	Assets	at	Fair	Value	as	of	December	2011 | Other	Financial	Assets	at	Fair	Value	as	of	December	2011 |  |
| :--- | :--- | :--- | :--- | :--- |
| in\tmillions | Level\t1 | Level\t2 | Level\t3 | Total |
| Securities\tsegregated\tfor\tregulatory\tand\tother\tpurposes^\t1 | $21,263 | $\t\t20,751 | $\t\t\t\t\t\t\t\t— | $\t\t42,014 |
| Securities\tpurchased\tunder\tagreements\tto\tresell | — | 187,232 | 557 | 187,789 |
| Securities\tborrowed | — | 47,621 | — | 47,621 |
| Receivables\tfrom\tcustomers\tand\tcounterparties | — | 8,887 | 795 | 9,682 |
| Total | $21,263 | $264,491 | $\t\t1,352 | $287,106 |

|  | Other	Financial	Liabilities	at	Fair	Value	as	of	December		2011 | Other	Financial	Liabilities	at	Fair	Value	as	of	December		2011 | Other	Financial	Liabilities	at	Fair	Value	as	of	December		2011 |  |
| :--- | :--- | :--- | :--- | :--- |
| in\tmillions | Level\t1 | Level\t2 | Level\t3 | Total |
| Deposits | $\t\t\t\t\t\t\t\t— | $\t\t\t\t4,513 | $\t\t\t\t\t\t\t13 | $\t\t\t\t4,526 |
| Securities\tsold\tunder\tagreements\tto\trepurchase | — | 162,321 | 2,181 | 164,502 |
| Securities\tloaned | — | 107 | — | 107 |
| Other\tsecured\tfinancings | — | 28,267 | 1,752 | 30,019 |
| Unsecured\tshort-term\tborrowings | — | 14,560 | 3,294 | 17,854 |
| Unsecured\tlong-term\tborrowings | — | 14,971 | 2,191 | 17,162 |
| Other\tliabilities\tand\taccrued\texpenses | — | 490 | 8,996 | 9,486 |
| Total | $\t\t\t\t\t\t\t\t— | $225,229 | $18,427 | $243,656 |

1.Includes	securities	segregated	for	regulatory	and	other	purposes	accounted	for	at	fair	value	under	the	fair	value	option,	which	consists	of	securities	borrowed	and	resale	agreements.	The	table above	includes	$21.26	billion	of	level	1	and	$528	million	of	level	2	securities	segregated	for	regulatory	and	other	purposes	accounted	for	at	fair	value	under	other	U.S.	GAAP,	principally	consisting	of U.S.	Treasury	securities,	money	market	instruments	and	insurance	separate	account	assets.

Transfers	between	levels	of	the	fair	value	hierarchy	are	reported	at	the	beginning of	the	reporting	period	in	which	they	occur.	There	were	no	transfers	of	other financial	assets	and	financial	liabilities	between	level	1	and	level	2	during	the year	 ended	 December	 2012.	 The	 tables	 below	 present	 information	 about transfers	between	level	2	and	level	3.

If	 a	 financial	 asset	 or	 financial	 liability	 was	 transferred	 to	 level	 3	 during	 a reporting	year,	its	entire	gain	or	loss	for	the	year	is	included	in	level	3.

The	 tables	below	present	changes	 in	fair	value	for	other	financial	assets	and financial	liabilities	accounted	for	at	fair	value	categorized	as	level	3	as	of	the	end of	 the	 year.	 Level 3 other	 financial	 assets	 and	 liabilities	 are frequently economically	hedged	with	cash	instruments	and	derivatives.	Accordingly,	gains or	losses	that	are	reported	in	level	3	can	be	partially	offset	by	gains	or	losses attributable	to	level	1,	2	or	3	cash	instruments	or	derivatives.	As	a	result,	gains or	losses	included	in	the	level	3	rollforward	below	do	not	necessarily	represent the	 overall	 impact	 on	 the	 firm's	 results	 of	 operations,	 liquidity or capital resources.

Level	3	Other	Financial	Assets	at	Fair	Value	for	the	Year	Ended	December	2012

1.The	aggregate	amounts	include	losses	of	approximately	$1.37	billion,	$113	million	and	$15	million	reported	in	"Market	making,"	"Other	principal	transactions"	and	"Interest	expense,"	respectively.

The	net	unrealized	loss	on	level	3	other	financial	liabilities	of	$1.39	billion	for the	year	ended	December	2012	primarily	reflected	the	impact	of	tighter	funding spreads	and	changes	in	foreign	exchange	rates	on	certain	insurance	liabilities, and	 an	 increase	 in	 global	 equity	 prices	 and	 tighter	 credit	 spreads	 on	 certain hybrid	financial	instruments.

Transfers	 into	 level 3 of	 other	 financial	 assets	 during	 the year ended December	2012	reflected	transfers	of	level	3	assets	classified	as	held	for	sale related	to	the	firm's	reinsurance	business,	which	were	previously included in level	3	"Financial	instruments	owned,	at	fair	value."

Transfers out of level 3 of other financial assets during the year ended December	2012	reflected transfers to level	2	of	certain insurance	receivables primarily	due	to	increased	transparency	of	the	mortality	inputs	used	to	value these	receivables.

Transfers into level 3 of other financial liabilities during the year ended December	 2012	 primarily reflected transfers from level	 2	 of	 certain	 hybrid financial instruments, principally due to decreased transparency of certain correlation	and	volatility	inputs	used	to	value	these	instruments.

Transfers	 out	 of level	 3	 of	 other financial liabilities	 during the	 year	 ended December	2012	primarily	reflected	transfers	to	level	2	of	certain	hybrid	financial instruments,	principally	due	to	increased	transparency	of	certain	correlation	and volatility inputs	used to	value these instruments,	and	unobservable inputs	no longer	being	significant	to	the	valuation	of	other	instruments.

1.The	aggregate	amounts	include	losses	of	approximately	$766	million,	$7	million	and	$8	million	reported	in	"Market	making,"	"Other	principal	transactions"	and	"Interest	expense,"	respectively.

The	net	unrealized	loss	on	other	financial	assets	and	liabilities	at	fair	value	of $709	million	for	the	year	ended	December	2011	primarily	consisted	of	losses	on other	liabilities	and	accrued	expenses,	primarily	attributable	to	the	impact	of	a change in interest rates on certain insurance liabilities.	 These losses	 were primarily offset by gains on unsecured short-term borrowings, primarily reflecting	gains	on	certain	equity-linked	notes,	principally	due	to	a	decline	in global	equity	markets.

Ÿ	Other secured financings: net transfer out of level 3 of $3.03 billion, principally	due	to	transfers	to	level	2	of	certain	borrowings	as	unobservable inputs	were	no	longer	significant	to	the	valuation	of	these	borrowings	as	they neared	maturity.

Ÿ	Unsecured	short-term	borrowings:	net	transfer	into	level	3	of	$443	million, principally	 due to transfers to level	 3	 of certain	 borrowings	 due to less transparency of market prices as a result of less activity in these financial	instruments.

# Gains	 and	 Losses	 on	 Financial	 Assets	 and	 Financial	 Liabilities

# Accounted	for	at	Fair	Value	Under	the	Fair	Value	Option

The	table	below	presents	the	gains	and	losses	recognized	as	a	result	of	the	firm electing	to	apply	the	fair	value	option	to	certain	financial	assets	and	financial liabilities.	These	gains	and	losses	are	included	in	"Market	making"	and	"Other principal	transactions."	The	table	below	also	includes	gains	and	losses	on	the embedded	 derivative	 component	 of	 hybrid	 financial	 instruments	 included	 in unsecured	short-term	borrowings	and	unsecured	long-term	borrowings.	These

gains	and	losses	would	have	been	recognized	under	other	U.S.	GAAP	even	if	the firm	had	not	elected	to	account	for	the	entire	hybrid	instrument	at	fair	value.

The	 amounts	 in	 the	 table	 exclude	 contractual	 interest,	 which	 is	 included	 in "Interest	income"	and	"Interest	expense,"	for	all	instruments	other	than	hybrid financial	instruments.	See	Note	23	for	further	information	about	interest	income and	interest	expense.

| in	millions | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Receivables\tfrom\tcustomers\tand\tcounterparties\t^1 | $\t\t\t\t190 | $\t\t\t\t\t97 | $\t\t\t\t\t(97) |
| Other\tsecured\tfinancings | (190) | (63) | (227) |
| Unsecured\tshort-term\tborrowings\t^2 | (973) | 2,149 | (1,455) |
| Unsecured\tlong-term\tborrowings\t^3 | (1,523) | 2,336 | (1,169) |
| Other\tliabilities\tand\taccrued\texpenses\t^4 | (1,486) | (911) | 50 |
| Other\t^5 | (81) | 90 | (10) |
| Total | $(4,063) | $3,698 | $(2,908) |

1.Primarily	consists	of	gains/(losses)	on	certain	reinsurance	contracts	and	certain	transfers	accounted	for	as	receivables	rather	than	purchases.

2.Includes	gains/(losses)	on	 the	embedded	derivative	component	of	hybrid	 financial	 instruments	of	$(814)	million,	$2.01	billion,	and	$(1.49)	billion	as	of	December	2012,	December	2011	and December	2010,	respectively.

4.Primarily	consists	of	gains/(losses)	on	certain	insurance	contracts.

5.Primarily	consists	of	gains/(losses)	on	resale	and	repurchase	agreements,	securities	borrowed	and	loaned	and	deposits.

Excluding	the	gains	and	losses	on	the	instruments	accounted	for	under	the	fair value	 option	 described	 above,	 "Market	 making"	 and	 "Other	 principal transactions"

primarily	represent	gains	and	losses	on	"Financial	instruments	owned,	at	fair value"	and	"Financial	instruments	sold,	but	not	yet	purchased,	at	fair	value."

# Loans	and	Lending	Commitments

The	table	below	presents	the	difference	between	the	aggregate	fair	value	and	the aggregate	contractual	principal	amount	for	loans	and	long-term	receivables	for which	the	fair	value	option	was	elected.

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Aggregate\tcontractual\tprincipal\tamount\tof\tperforming\tloans\tand\tlong- |  |  |
| term |  |  |
| receivables\tin\texcess\tof\tthe |  |  |
| related\tfair\tvalue | \t\t$\t\t2,742 | \t $\t\t3,826 |
| Aggregate\tcontractual\tprincipal\tamount |  |  |
| of\tloans\ton\tnonaccrual\tstatus\tand/or\tmore\tthan\t90\tdays\tpast\tdue\tin |  |  |
| excess |  |  |
| of\tthe\trelated\tfair\tvalue | 22,610 | 23,034 |
| Total^\t1 | \t\t$25,352 | \t $26,860 |
| Aggregate\tfair\tvalue\tof\tloans\ton\tnonaccrual\nstatus\tand/or\tmore\tthan\t90\tdays\tpast\tdue | \t\t$\t\t1,832 | \t $\t\t3,174 |

1.The	aggregate	contractual	principal	exceeds	the	related	fair	value	primarily	because	the	firm regularly	purchases	loans,	such	as	distressed	loans,	at	values	significantly	below	contractual principal	amounts.

As	of	December	2012	and	December	2011,	the	fair	value	of	unfunded	lending commitments	 for	 which	 the	 fair	 value	 option	 was	 elected	 was	 a	 liability	 of $1.99	billion	and	$2.82	billion,	respectively,	and	 the	related	 total	contractual amount	of	these	lending	commitments	was	$59.29	billion	and	$66.12	billion, respectively.	See	Note	18	for	further	information	about	lending	commitments.

# Long-term	Debt	Instruments

The	 aggregate	 contractual	 principal	 amount	 of	 long-term	 other	 secured financings	for	which	the	fair	value	option	was	elected	exceeded	the	related	fair value	 by $115 million	 and $239 million	 as	 of	 December	 2012	 and December	2011,	respectively.	The	fair	value	of	unsecured	long-term	borrowings for	 which	 the	 fair	 value	 option	 was	 elected	 exceeded	 the	 related	 aggregate contractual	principal	amount	by	$379	million	as	of	December	2012,	whereas	the aggregate	 contractual	 principal	 amount	 exceeded	 the	 related	 fair	 value	 by $693	million	as	of	December	2011.	The	amounts	above	include	both	principal and	non-principal-protected	long-term	borrowings.

# Impact	of	Credit	Spreads	on	Loans	and	Lending	Commitments

The	estimated	net	gain/(loss)	attributable	to	changes	in	instrument-specific	credit spreads	on	loans	and	lending	commitments	for	which	the	fair	value	option	was elected	was	$3.07	billion,	$(805)	million	and	$1.85	billion	for	the	years	ended December	2012,	December	2011	and	December	2010,	respectively.	Changes	in the	fair	value	of	loans	and	lending	commitments	are	primarily	attributable	to changes	 in	 instrument-specific	 credit	 spreads.	 Substantially	 all	 of	 the	 firm's performing	loans	and	lending	commitments	are	floating-rate.

# Impact	of	Credit	Spreads	on	Borrowings

The	 table	 below	 presents	 the	 net	 gains/(losses)	 attributable	 to	 the	 impact	 of changes	in	the	firm's	own	credit	spreads	on	borrowings	for	which	the	fair	value option	 was	 elected.	 The	 firm	 calculates	 the	 fair	 value	 of	 borrowings	 by discounting	 future	 cash	 flows	 at	 a	 rate	 which	 incorporates	 the	 firm's credit	spreads.

# Collateralized	Agreements	and	Financings

Collateralized	agreements	are	securities	purchased	under	agreements	 to	resell (resale	agreements	or	reverse	repurchase	agreements)	and	securities	borrowed. Collateralized	 financings	 are	 securities	 sold	 under	 agreements	 to	 repurchase (repurchase	 agreements),	 securities	 loaned	 and	 other	 secured	 financings.	The firm	 enters	 into	 these	 transactions	 in	 order	 to,	 among	 other	 things,	 facilitate client	activities,	invest	excess	cash,	acquire	securities	to	cover	short	positions	and finance	certain	firm	activities.

Collateralized	agreements	and	financings	are	presented	on	a	net-by-counterparty basis	when	a	legal	right	of	setoff	exists.	Interest	on	collateralized	agreements	and collateralized	 financings	 is	 recognized	 over	 the	 life	 of	 the	 transaction	 and included	in	"Interest	income"	and	"Interest	expense,"	respectively.	See	Note	23 for	further	information	about	interest	income	and	interest	expense.

The	table	below	presents	the	carrying	value	of	resale	and	repurchase	agreements and	securities	borrowed	and	loaned	transactions.

|  | As	of	December |  |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Securities\tpurchased\tunder\tagreements\nto\tresell\t^1 | \t\t$141,334 | \t$187,789 |
| Securities\tborrowed\t^2 | 136,893 | 153,341 |
| Securities\tsold\tunder\tagreements\nto\trepurchase^\t1 | 171,807 | 164,502 |
| Securities\tloaned\t^2 | 13,765 | 7,182 |

1.Substantially	all	resale	and	repurchase	agreements	are	carried	at	fair	value	under	the	fair value	 option.	 See	 Note 8 for	 further	 information	 about	 the	 valuation	 techniques	 and significant	inputs	used	to	determine	fair	value.

# Resale	and	Repurchase	Agreements

A	 resale	 agreement	 is	 a	 transaction	 in	 which	 the	 firm	 purchases	 financial instruments	from	a	seller,	typically	in	exchange	for	cash,	and	simultaneously enters	into	an	agreement	to	resell	the	same	or	substantially	the	same	financial instruments	to	the	seller	at	a	stated	price	plus	accrued	interest	at	a	future	date.

A	 repurchase	 agreement	 is	 a	 transaction	 in	 which	 the	 firm	 sells	 financial instruments	to	a	buyer,	typically	in	exchange	for	cash,	and	simultaneously	enters into	an	agreement	 to	repurchase	 the	same	or	substantially	 the	same	financial instruments	from	the	buyer	at	a	stated	price	plus	accrued	interest	at	a	future	date.

The	financial	instruments	purchased	or	sold	in	resale	and	repurchase	agreements typically	 include	 U.S.	 government	 and	 federal	 agency,	 and	 investment-grade sovereign	obligations.

The	 firm	 receives	 financial	 instruments	 purchased	 under	 resale	 agreements, makes	 delivery	 of	 financial	 instruments	 sold	 under	 repurchase	 agreements, monitors	the	market	value	of	these	financial	instruments	on	a	daily	basis,	and delivers	or	obtains	additional	collateral	due	to	changes	in	the	market	value	of	the financial	instruments,	as	appropriate.	For	resale	agreements,	the	firm	typically requires	 delivery	 of	 collateral	 with	 a	 fair	 value	 approximately	 equal	 to	 the carrying	 value	 of	 the	 relevant	 assets	 in	 the	 consolidated	 statements	 of financial	condition.

Even	 though	 repurchase	 and	 resale	 agreements	 involve	 the	 legal	 transfer	 of ownership	 of	 financial	 instruments,	 they	 are	 accounted	 for	 as	 financing arrangements	because	they	require	the	financial	instruments	to	be	repurchased	or resold	 at	 the	 maturity	 of	 the	 agreement.	 However,	 "repos	 to	 maturity"	 are accounted	for	as	sales.	A	repo	to	maturity	is	a	transaction	in	which	the	firm transfers	a	security	under	an	agreement	 to	repurchase	 the	security	where	 the maturity	 date	 of	 the	 repurchase	 agreement	 matches	 the	 maturity	 date	 of	 the underlying	security.	Therefore,	the	firm	effectively	no	longer	has	a	repurchase obligation	 and	 has	 relinquished	 control	 over	 the	 underlying	 security	 and, accordingly,	accounts	for	the	transaction	as	a	sale.	The	firm	had	no	repos	to maturity	outstanding	as	of	December	2012	or	December	2011.

# Securities	Borrowed	and	Loaned	Transactions

In	 a	 securities	 borrowed	 transaction,	 the	 firm	 borrows	 securities	 from	 a counterparty	 in	 exchange	 for	 cash.	When	 the	 firm	 returns	 the	 securities,	 the counterparty	returns	the	cash.	Interest	is	generally	paid	periodically	over	the	life of	the	transaction.

In	 a	 securities	 loaned	 transaction,	 the	 firm	 lends	 securities	 to	 a	 counterparty typically	 in	 exchange	 for	 cash	 or	 securities,	 or	 a	 letter	 of	 credit.	 When	 the counterparty	returns	the	securities,	the	firm	returns	the	cash	or	securities	posted as	 collateral.	 Interest	 is	 generally	 paid	 periodically	 over	 the	 life	 of the	transaction.

The	 firm	 receives	 securities	 borrowed,	 makes	 delivery	 of	 securities	 loaned, monitors	the	market	value	of	these	securities	on	a	daily	basis,	and	delivers	or obtains	additional	collateral	due	to	changes	in	the	market	value	of	the	securities, as	appropriate.	For	securities	borrowed	transactions,	the	firm	typically	requires collateral	 with	 a	 fair	 value	 approximately	 equal	 to	 the	 carrying	 value	 of	 the securities	borrowed	transaction.

Securities	 borrowed	 and	 loaned	 within	 Fixed	 Income,	 Currency	 and Commodities	Client	Execution	are	recorded	at	fair	value	under	the	fair	value option.	See	Note	8	for	further	information	about	securities	borrowed	and	loaned accounted	for	at	fair	value.

Securities	borrowed	and	loaned	within	Securities	Services	are	recorded	based	on the	amount	of	cash	collateral	advanced	or	received	plus	accrued	 interest.	As these	arrangements	generally	can	be	terminated	on	demand,	they	exhibit	little,	if any,	sensitivity	to	changes	in	interest	rates.	Therefore,	the	carrying	value	of	such arrangements	approximates	fair	value.	While	these	arrangements	are	carried	at amounts	that	approximate	fair	value,	they	are	not	accounted	for	at	fair	value under	the	fair	value	option	or	at	fair	value	in	accordance	with	other	U.S.	GAAP and	therefore	are	not	included	in	the	firm's	fair	value	hierarchy	in	Notes	6,	7	and 8.	Had	these	arrangements	been	included	in	the	firm's	fair	value	hierarchy,	they would	have	been	classified	in	level	2	as	of	December	2012.

As	 of	 December	 2012	 and	 December	 2011,	 the	 firm	 had	 $8.94	 billion	 and $20.22	billion,	respectively,	of	securities	received	under	resale	agreements	and securities	 borrowed	 transactions	 that	 were	 segregated	 to	 satisfy	 certain regulatory	requirements.	These	securities	are	included	in	"Cash	and	securities segregated	for	regulatory	and	other	purposes."

# Other	Secured	Financings

In	addition	to	repurchase	agreements	and	securities	lending	transactions,	the	firm funds	certain	assets	 through	 the	use	of	other	secured	financings	and	pledges financial	instruments	and	other	assets	as	collateral	in	these	transactions.	These other	secured	financings	consist	of:

# Ÿ	liabilities	of	consolidated	VIEs;

Ÿ	transfers	 of	 assets	 accounted	 for	 as	 financings	 rather	 than	 sales	 (primarily collateralized	central	bank	financings,	pledged	commodities,	bank	loans	and mortgage	whole	loans);	and

# Ÿ	other	structured	financing	arrangements.

Other	 secured	 financings	 include	 arrangements	 that	 are	 nonrecourse.	 As	 of December	2012	and	December	2011,	nonrecourse	other	secured	financings	were $1.76	billion	and	$3.14	billion,	respectively.

The	firm	has	elected	 to	apply	 the	fair	value	option	 to	substantially	all	other secured	 financings	 because	 the	 use	 of	 fair	 value	 eliminates	 non-economic volatility	 in	 earnings	 that	 would	 arise	 from	 using	 different	 measurement attributes.	See	Note	8	for	further	information	about	other	secured	financings	that are	accounted	for	at	fair	value.

Other	secured	financings	that	are	not	recorded	at	fair	value	are	recorded	based on	 the	 amount	 of	 cash	 received	 plus	 accrued	 interest,	 which	 generally approximates	 fair	 value.	 While	 these	 financings	 are	 carried	 at	 amounts	 that approximate	fair	value,	they	are	not	accounted	for	at	fair	value	under	the	fair value	option	or	at	fair	value	in	accordance	with	other	U.S.	GAAP	and	therefore are	not	included	in	the	firm's	fair	value	hierarchy	in	Notes	6,	7	and	8.	Had	these financings	been	 included	 in	 the	firm's	fair	value	hierarchy,	 they	would	have primarily	been	classified	in	level	3	as	of	December	2012.

The table	 below	 presents information	 about	 other	 secured financings. In the table	below:

Ÿ	short-term	secured	financings	include	financings	maturing	within	one	year	of the	financial	statement	date	and	financings that	are	redeemable	within	one year	of	the	financial	statement	date	at	the	option	of	the	holder;

Ÿ	long-term	secured	financings	that	are	repayable	prior	to	maturity	at	the	option of	the	firm	are	reflected	at	their	contractual	maturity	dates;	and

Ÿ	long-term secured financings that	 are redeemable	 prior to	 maturity	 at the option of the holders are reflected at the dates such options become	exercisable.

|  | As	of	December	2012 | As	of	December	2012 |  | As	of	December	2011 | As	of	December	2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| $\tin\tmillions | U.S.\nDollar | Non-U.S.\nDollar | Total | U.S.\nDollar | Non-U.S.\nDollar | Total |
| Other\tsecured\tfinancings\t(short-term):\nAt\tfair\tvalue | \t$16,504 | $6,181 | \t$22,685 | \t$18,519 | $\t\t5,140 | \t$23,659 |
| At\tamortized\tcost | 34 | 326 | 360 | 155 | 5,371 | 5,526 |
| Interest\trates\t^1 | 6.18% | 0.10% |  | 3.85% | 0.22% |  |
| Other\tsecured\tfinancings\t(long-term):\nAt\tfair\tvalue | 6,134 | 1,518 | 7,652 | 4,305 | 2,055 | 6,360 |
| At\tamortized\tcost | 577 | 736 | 1,313 | 1,024 | 795 | 1,819 |
| Interest\trates\t^1 | 2.61% | 2.55% |  | 1.88% | 3.28% |  |
| Total\t^2 | \t$23,249 | $8,761 | \t$32,010 | \t$24,003 | $13,361 | \t$37,364 |
| Amount\tof\tother\tsecured\tfinancings\tcollateralized\tby:\nFinancial\tinstruments\t^3 | \t$22,323 | $8,442 | \t$30,765 | \t$22,850 | $12,274 | \t$35,124 |
| Other\tassets\t^4 | 926 | 319 | 1,245 | 1,153 | 1,087 | 2,240 |

1.The	weighted	average	interest	rates	exclude	secured	financings	at	fair	value	and	include	the	effect	of	hedging	activities.	See	Note	7	for	further	information	about	hedging	activities.

2.Includes	$8.68	billion	and	$9.36	billion	related	to	transfers	of	financial	assets	accounted	for	as	financings	rather	than	sales	as	of	December	2012	and	December	2011,	respectively.	Such	financings were	collateralized	by	financial	assets	included	in	"Financial	instruments	owned,	at	fair	value"	of	$8.92	billion	and	$9.51	billion	as	of	December	2012	and	December	2011,	respectively.

3.Includes	$17.24	billion	and	$14.33	billion	of	other	secured	financings	collateralized	by	financial	instruments	owned,	at	fair	value	as	of	December	2012	and	December	2011,	respectively,	and	includes $13.53	billion	and	$20.79	billion	of	other	secured	financings	collateralized	by	financial	instruments	received	as	collateral	and	repledged	as	of	December	2012	and	December	2011,	respectively. 4.Primarily	real	estate	and	cash.

The	table	below	presents	other	secured	financings	by	maturity.

|  | As	of |
| :--- | :--- |
| in\tmillions | December\t2012 |
| Other\tsecured\tfinancings\t(short-term) | $23,045 |
| Other\tsecured\tfinancings\t(long-term):\n2014 | 4,957 |
| 2015 | 1,446 |
| 2016 | 869 |
| 2017 | 271 |
| 2018-thereafter | 1,422 |
| Total\tother\tsecured\tfinancings\t(long-term) | 8,965 |
| Total\tother\tsecured\tfinancings | $32,010 |

# Collateral	Received	and	Pledged

The	 firm	 receives	 financial	 instruments	 (e.g.,	 U.S.	 government	 and	 federal agency,	 other	 sovereign	 and	 corporate	 obligations,	 as	 well	 as	 equities	 and convertible	 debentures)	 as	 collateral,	 primarily	 in	 connection	 with	 resale agreements,	 securities	 borrowed,	 derivative	 transactions	 and	 customer margin	loans.

In	 many	 cases,	 the	 firm	 is	 permitted	 to	 deliver	 or	 repledge	 these	 financial instruments	 when	 entering	 into	 repurchase	 agreements	 and	 securities	 lending agreements,	primarily	in	connection	with	secured	client	financing	activities.	The firm	 is	 also	 permitted	 to	 deliver	 or	 repledge	 these	 financial	 instruments	 in connection	with	other	secured	financings,	collateralizing	derivative	transactions and	meeting	firm	or	customer	settlement	requirements.

The	table	below	presents	financial	instruments	at	fair	value	received	as	collateral that	were	available	to	be	delivered	or	repledged	and	were	delivered	or	repledged by	the	firm.

The	 firm	 also	 pledges	 certain	 financial	 instruments	 owned,	 at	 fair	 value	 in connection	with	repurchase	agreements,	securities	lending	agreements	and	other secured	 financings,	 and	 other	 assets	 (primarily	 real	 estate	 and	 cash)	 in connection	with	other	secured	financings	to	counterparties	who	may	or	may	not have	the	right	to	deliver	or	repledge	them.	The	table	below	presents	information about	assets	pledged	by	the	firm.

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Financial\tinstruments\towned,\tat\tfair\tvalue\tpledged\tto\tcounterparties\nthat: |  |  |
| Had\tthe\tright\tto\tdeliver\tor\trepledge | \t\t$\t\t67,177 | \t$\t\t53,989 |
| Did\tnot\thave\tthe\tright\tto\tdeliver\tor\nrepledge | 120,980 | 110,949 |
| Other\tassets\tpledged\tto\tcounterparties\tthat: |  |  |
| Did\tnot\thave\tthe\tright\tto\tdeliver\tor |  |  |
| repledge | 2,031 | 3,444 |

# Securitization	Activities

The	 firm	 securitizes	 residential	 and	 commercial	 mortgages,	 corporate	 bonds, loans	and	other	types	of	financial	assets	by	selling	these	assets	to	securitization vehicles	(e.g.,	trusts,	corporate	entities	and	limited	liability	companies)	and	acts as	underwriter	of	the	beneficial	interests	that	are	sold	to	investors.	The	firm's residential	 mortgage	 securitizations	 are	 substantially	 all	 in	 connection	 with government	agency	securitizations.

Beneficial	interests	issued	by	securitization	entities	are	debt	or	equity	securities that	give	the	investors	rights	to	receive	all	or	portions	of	specified	cash	inflows	to a	securitization	vehicle	and	include	senior	and	subordinated	shares	of	principal, interest	 and/or	 other	 cash	 inflows.	 The	 proceeds	 from	 the	 sale	 of	 beneficial interests	 are	 used	 to	 pay	 the	 transferor	 for	 the	 financial	 assets	 sold	 to	 the securitization	vehicle	or	to	purchase	securities	which	serve	as	collateral.

The	firm	accounts	for	a	securitization	as	a	sale	when	it	has	relinquished	control over	the	transferred	assets.	Prior	to	securitization,	the	firm	accounts	for	assets pending	 transfer	 at	 fair	 value	 and	 therefore	 does	 not	 typically	 recognize significant	 gains	 or	 losses	 upon	 the	 transfer	 of	 assets.	 Net	 revenues	 from underwriting	 activities	 are	 recognized	 in	 connection	 with	 the	 sales	 of	 the underlying	beneficial	interests	to	investors.

For	transfers	of	assets	that	are	not	accounted	for	as	sales,	the	assets	remain	in "Financial	instruments	owned,	at	fair	value"	and	the	transfer	is	accounted	for	as a	collateralized	financing,	with	the	related	interest	expense	recognized	over	the life	 of	 the	 transaction.	 See	 Notes 9 and 23 for	 further	 information	 about collateralized	financings	and	interest	expense,	respectively.

The	firm	generally	receives	cash	in	exchange	for	the	transferred	assets	but	may also	have	continuing	involvement	with	transferred	assets,	including	ownership	of beneficial	interests	in	securitized	financial	assets,	primarily	in	the	form	of	senior or	subordinated	securities.	The	firm	may	also	purchase	senior	or	subordinated securities	 issued	 by	 securitization	 vehicles	 (which	 are	 typically	 VIEs)	 in connection	with	secondary	market-making	activities.

The	primary	risks	included	in	beneficial	interests	and	other	interests	from	the firm's	continuing	involvement	with	securitization	vehicles	are	the	performance of	the	underlying	collateral,	the	position	of	the	firm's	investment	in	the	capital structure	of	the	securitization	vehicle	and	the	market	yield	for	the	security.	These interests	 are	 accounted	 for	 at	 fair	 value	 and	 are	 included	 in	 "Financial instruments	owned,	at	fair	value"	and	are	generally	classified	in	level	2	of	the fair	value	hierarchy.	See	Notes	5	through	8	for	further	information	about	fair value	measurements.

The	table	below	presents	the	amount	of	financial	assets	securitized	and	the	cash flows	received	on	retained	interests	in	securitization	entities	in	which	the	firm had	continuing	involvement.

| in	millions | 2012 | 2011 | 2010 |
| :--- | :--- | :--- | :--- |
| Residential\tmortgages | \t\t$33,755 | \t$40,131 | \t $47,803 |
| Commercial\tmortgages | 300 | — | 1,451 |
| Other\tfinancial\tassets | — | 269 | 12 |
| Total | \t\t$34,055 | \t$40,400 | \t $49,266 |
| Cash\tflows\ton\tretained\ninterests | \t\t$\t\t\t\t\t389 | \t$\t\t\t\t\t569 | \t $\t\t\t\t\t517 |

The	table	below	presents	the	firm's	continuing	involvement	in	nonconsolidated securitization	 entities	 to	 which	 the	 firm	 sold	 assets,	 as	 well	 as	 the	 total outstanding	 principal	 amount	 of	 transferred	 assets	 in	 which	 the	 firm	 has continuing	involvement.	In	this	table:

Ÿ	the	outstanding	principal	amount	 is	presented	for	 the	purpose	of	providing information	about	the	size	of	the	securitization	entities	in	which	the	firm	has continuing	involvement	and	is	not	representative	of	the	firm's	risk	of	loss;

Ÿ	for	retained	or	purchased	interests,	the	firm's	risk	of	loss	is	limited	to	the	fair value	of	these	interests;	and

Ÿ	purchased	interests	represent	senior	and	subordinated	interests,	purchased	in connection	with	secondary	market-making	activities,	in	securitization	entities in	which	the	firm	also	holds	retained	interests.

|  |  | As	of	December	2012 |  |  | As	of	December	2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Outstanding | Fair\tValue\tof | Fair\tValue | Outstanding | Fair\tValue\tof | Fair\tValue\tof |
|  | Principal | Retained | of\tPurchased | Principal | Retained | Purchased |
| in\tmillions | Amount | Interests | Interests | Amount | Interests | Interests |
| U.S.\tgovernment\tagency-issued\tcollateralized\tmortgage\tobligations^\t1 | $57,685 | $4,654 | $\t\t— | $70,448 | $5,038 | $\t\t— |
| Other\tresidential\tmortgage-backed\t^2 | 3,656 | 106 | — | 4,459 | 101 | 3 |
| Commercial\tmortgage-backed\t^3 | 1,253 | 1 | 56 | 3,398 | 606 | 331 |
| CDOs,\tCLOs\tand\tother\t^4 | 8,866 | 51 | 331 | 9,972 | 32 | 211 |
| Total\t^5 | $71,460 | $4,812 | $387 | $88,277 | $5,777 | $545 |

1.Outstanding	principal	amount	and	fair	value	of	retained	interests	primarily	relate	to	securitizations	during	2012	and	2011	as	of	December	2012,	and	securitizations	during	2011	and	2010	as	of December	2011.

2.Outstanding	principal	amount	and	fair	value	of	retained	interests	as	of	both	December	2012	and	December	2011	primarily	relate	to	prime	and	Alt-A	securitizations	during	2007	and	2006.

3.As	of	December	2012,	the	outstanding	principal	amount	primarily	relates	to	securitizations	during	2012	and	2007	and	the	fair	value	of	retained	interests	primarily	relate	to	securitizations	during 2012.	As	 of	 December	 2011,	 the	 outstanding	 principal	 amount	 primarily	 relates	 to	 securitizations	 during	 2010,	 2007	 and	 2006	 and	 the	 fair	 value	 of	 retained	 interests	 primarily	 relates	 to securitizations	during	2010.

4.Outstanding	principal	amount	and	fair	value	of	retained	interests	as	of	both	December	2012	and	December	2011	primarily	relate	to	CDO	and	CLO	securitizations	during	2007	and	2006.

5.Outstanding	principal	amount	includes	$835	million	and	$774	million	as	of	December	2012	and	December	2011,	respectively,	related	to	securitization	entities	in	which	the	firm's	only	continuing involvement	is	retained	servicing	which	is	not	a	variable	interest.

In	addition	 to	 the	 interests	 in	 the	 table	above,	 the	firm	had	other	continuing involvement	in	the	form	of	derivative	transactions	and	guarantees	with	certain nonconsolidated	VIEs.	The	carrying	value	of	these	derivatives	and	guarantees was	 a	 net	 asset	 of $45	 million and	 a	 net	 liability	 of $52	 million as	 of December	 2012	 and	 December	 2011,	 respectively.	 The	 notional	 amounts	 of these	derivatives	and	guarantees	are	included	in	maximum	exposure	to	loss	in	the nonconsolidated	VIE	tables	in	Note	11.

The	table	below	presents	the	weighted	average	key	economic	assumptions	used in	measuring	the	fair	value	of	retained	interests	and	the	sensitivity	of	this	fair value	to	immediate	adverse	changes	of	10%	and	20%	in	those	assumptions.

|  | As	of	December	2012 | As	of	December	2012 | As	of	December	2011 | As	of	December	2011 |
| :--- | :--- | :--- | :--- | :--- |
|  | Type\tof\tRetained\tInterests | Type\tof\tRetained\tInterests | Type\tof\tRetained\tInterests | Type\tof\tRetained\tInterests |
| $\tin\tmillions | \tMortgage-Backed | \tOther^\t1 | \tMortgage-Backed | \tOther^\t1 |
| Fair\tvalue\tof\tretained\tinterests | $4,761 | $\t\t\t\t51 | $5,745 | $\t\t\t\t32 |
| Weighted\taverage\tlife\t(years) | 8.2 | 2.0 | 7.1 | 4.7 |
| Constant\tprepayment\trate\t^2 | 10.9% | N.M. | 14.1% | N.M. |
| Impact\tof\t10%\tadverse\tchange\t^2 | $\t\t\t\t(57) | N.M. | $\t\t\t\t(55) | N.M. |
| Impact\tof\t20%\tadverse\tchange\t^2 | (110) | N.M. | (108) | N.M. |
| Discount\trate\t^3 | 4.6% | N.M. | 5.4% | N.M. |
| Impact\tof\t10%\tadverse\tchange | $\t\t\t\t(96) | N.M. | $\t\t(125) | N.M. |
| Impact\tof\t20%\tadverse\tchange | (180) | N.M. | (240) | N.M. |

1.Due	to	the	nature	and	current	fair	value	of	certain	of	these	retained	interests,	the	weighted	average	assumptions	for	constant	prepayment	and	discount	rates	and	the	related	sensitivity	to	adverse changes	are	not	meaningful	as	of	December	2012	and	December	2011.	The	firm's	maximum	exposure	to	adverse	changes	in	the	value	of	these	interests	is	the	carrying	value	of	$51	million	and $32	million	as	of	December	2012	and	December	2011,	respectively.

2.Constant	prepayment	rate	is	included	only	for	positions	for	which	constant	prepayment	rate	is	a	key	assumption	in	the	determination	of	fair	value.

3.The	majority	of	mortgage-backed	retained	interests	are	U.S.	government	agency-issued	collateralized	mortgage	obligations,	for	which	there	is	no	anticipated	credit	loss.	For	the	remainder	of	retained interests,	the	expected	credit	loss	assumptions	are	reflected	in	the	discount	rate.

The	 preceding	 table	 does	 not	 give	 effect	 to	 the	 offsetting	 benefit	 of	 other financial	instruments	that	are	held	to	mitigate	risks	inherent	in	these	retained interests.	Changes	in	fair	value	based	on	an	adverse	variation	in	assumptions generally	 cannot	 be	 extrapolated	 because	 the	 relationship	 of	 the	 change	 in assumptions	to	the	change	in	fair	value	is

not	usually	linear.	In	addition,	the	impact	of	a	change	in	a	particular	assumption in	 the	 preceding	 table	 is	 calculated	 independently	 of	 changes	 in	 any	 other assumption.	In	practice,	simultaneous	changes	in	assumptions	might	magnify	or counteract	the	sensitivities	disclosed	above.

# Variable	Interest	Entities

VIEs	 generally	 finance	 the	 purchase	 of	 assets	 by	 issuing	 debt	 and	 equity securities	that	are	either	collateralized	by	or	indexed	to	the	assets	held	by	the VIE.	The	debt	and	equity	securities	issued	by	a	VIE	may	include	tranches	of varying	 levels	 of	 subordination.	 The	 firm's	 involvement	 with	 VIEs	 includes securitization	of	financial	assets,	as	described	in	Note	10,	and	investments	in	and loans	to	other	types	of	VIEs,	as	described	below.	See	Note	10	for	additional information	about	securitization	activities,	including	the	definition	of	beneficial interests.	 See	 Note 3 for	 the	 firm's	 consolidation	 policies,	 including	 the definition	of	a	VIE.

The	 firm is principally involved with VIEs through the following business	activities:

Mortgage-Backed	VIEs	and	Corporate	CDO	and	CLO	VIEs.	 The	firm sells	 residential	 and	 commercial	 mortgage	 loans	 and	 securities	 to	 mortgage- backed	VIEs	and	corporate	bonds	and	loans	to	corporate	CDO	and	CLO	VIEs and	may	retain	beneficial	interests	in	the	assets	sold	to	these	VIEs.	The	firm purchases	and	sells	beneficial	interests	issued	by	mortgage-backed	and	corporate CDO	and	CLO	VIEs	in	connection	with	market-making	activities.	In	addition, the	firm	may	enter	into	derivatives	with	certain	of	these	VIEs,	primarily	interest rate	swaps,	which	are	typically	not	variable	interests.	The	firm	generally	enters into	derivatives	with	other	counterparties	to	mitigate	its	risk	from	derivatives with	these	VIEs.

Certain	mortgage-backed	and	corporate	CDO	and	CLO	VIEs,	usually	referred	to as	synthetic	CDOs	or	credit-linked	note	VIEs,	synthetically	create	the	exposure for	the	beneficial	interests	they	issue	by	entering	into	credit	derivatives,	rather than	purchasing	the	underlying	assets.	These	credit	derivatives	may	reference	a single	asset,	an	index,	or	a	portfolio/basket	of	assets	or	indices.	See	Note	7	for further	information	about	credit	derivatives.	These	VIEs	use	the	funds	from	the sale	 of	 beneficial	 interests	 and	 the	 premiums	 received	 from	 credit	 derivative counterparties	to	purchase	securities	which	serve	to	collateralize	the	beneficial interest	holders	and/or	the	credit	derivative	counterparty.	These	VIEs	may	enter into	 other	 derivatives,	 primarily	 interest	 rate	 swaps,	 which	 are	 typically	 not variable	interests.	The	firm	may	be	a	counterparty	to	derivatives	with	these	VIEs and	generally	enters	into	derivatives	with	other	counterparties	to	mitigate	its	risk.

Real	 Estate,	 Credit-Related and	 Other Investing	 VIEs. The	 firm purchases	equity	and	debt	securities	issued	by	and	makes	loans	to	VIEs	that	hold real	 estate,	 performing	 and	 nonperforming	 debt,	 distressed	 loans	 and	 equity securities.	The	firm	typically	does	not	sell	assets	to,	or	enter	into	derivatives with,	these	VIEs.

Other	Asset-Backed	 VIEs.	 The firm	 structures	 VIEs	 that	 issue	 notes	 to clients	and	purchases	and	sells	beneficial	interests	issued	by	other	asset-backed VIEs	 in	 connection	 with	 market-making	 activities.	 In	 addition,	 the	 firm	 may enter	into	derivatives	with	certain	other	asset-backed	VIEs,	primarily	total	return swaps	on	the	collateral	assets	held	by	these	VIEs	under	which	the	firm	pays	the VIE	the	return	due	to	the	note	holders	and	receives	the	return	on	the	collateral assets	owned	by	the	VIE.	The	firm	generally	can	be	removed	as	the	total	return swap	 counterparty.	 The	 firm	 generally	 enters	 into	 derivatives	 with	 other counterparties	to	mitigate	its	risk	from	derivatives	with	these	VIEs.	The	firm typically	does	not	sell	assets	to	the	other	asset-backed	VIEs	it	structures.

Power-Related	VIEs.	The	firm	purchases	debt	and	equity	securities	issued	by, and	may	provide	guarantees	to,	VIEs	that	hold	power-related	assets.	The	firm typically	does	not	sell	assets	to,	or	enter	into	derivatives	with,	these	VIEs.

Investment	Funds.	The	firm	purchases	equity	securities	issued	by	and	may provide	 guarantees	 to	 certain	 of	 the	 investment	 funds	 it	 manages.	 The	 firm typically	does	not	sell	assets	to,	or	enter	into	derivatives	with,	these	VIEs.

Principal-Protected	 Note VIEs. The	 firm	 structures	 VIEs	 that	 issue principal-protected	 notes	 to	 clients.	 These	 VIEs	 own	 portfolios	 of	 assets, principally	 with	 exposure	 to	 hedge	 funds.	 Substantially	 all	 of	 the	 principal protection	on	the	notes	issued	by	these	VIEs	is	provided	by	the	asset	portfolio rebalancing	that	is	required	under	the	terms	of	the	notes.	The	firm	enters	into total	return	swaps	with	these	VIEs	under	which	the	firm	pays	the	VIE	the	return due	to	the	principal-protected	note	holders	and	receives	the	return	on	the	assets owned	by	the	VIE.	The	firm	may	enter	into	derivatives	with	other	counterparties to	mitigate	the	risk	it	has	from	the	derivatives	it	enters	into	with	these	VIEs.	The firm	also	obtains	funding	through	these	VIEs.

# VIE	Consolidation	Analysis

A	variable	interest	in	a	VIE	is	an	investment	(e.g.,	debt	or	equity	securities)	or other	interest	(e.g.,	derivatives	or	loans	and	lending	commitments)	in	a	VIE	that will	absorb	portions	of	the	VIE's	expected	losses	and/or	receive	portions	of	the VIE's	expected	residual	returns.

The	firm's	variable	interests	in	VIEs	include	senior	and	subordinated	debt	in residential	 and	 commercial	 mortgage-backed	 and	 other	 asset-backed securitization	 entities,	 CDOs	 and	 CLOs;	 loans	 and	 lending	 commitments; limited	 and	 general	 partnership	 interests;	 preferred	 and	 common	 equity; derivatives	 that	 may	 include	 foreign	 currency,	 equity	 and/or	 credit	 risk; guarantees;	 and	 certain	 of	 the	 fees	 the	 firm	 receives	 from	 investment	 funds. Certain	interest	rate,	foreign	currency	and	credit	derivatives	the	firm	enters	into with	VIEs	are	not	variable	interests	because	they	create	rather	than	absorb	risk.

The	enterprise	with	a	controlling	financial	 interest	 in	a	VIE	 is	known	as	 the primary	beneficiary	and	consolidates	the	VIE.	The	firm	determines	whether	it	is the	 primary	 beneficiary	 of	 a	 VIE	 by	 performing	 an	 analysis	 that principally	considers:

Ÿ	which	variable	interest	holder	has	the	power	to	direct	the	activities	of	the	VIE that	most	significantly	impact	the	VIE's	economic	performance;

Ÿ	which	variable	interest	holder	has	the	obligation	to	absorb	losses	or	the	right	to receive	benefits	from	the	VIE	that	could	potentially	be	significant	to	the	VIE;

Ÿ	the	VIE's	purpose	and	design,	including	the	risks	the	VIE	was	designed	to create	and	pass	through	to	its	variable	interest	holders;

# Ÿ	the	VIE's	capital	structure;

Ÿ	the	terms	between	the	VIE	and	its	variable	interest	holders	and	other	parties involved	with	the	VIE;	and

# Ÿ	related-party	relationships.

The	firm	reassesses	its	initial	evaluation	of	whether	an	entity	is	a	VIE	when certain	reconsideration	events	occur.	The	firm	reassesses	 its	determination	of whether	it	is	the	primary	beneficiary	of	a	VIE	on	an	ongoing	basis	based	on current	facts	and	circumstances.

# Nonconsolidated	VIEs

The	firm's	exposure	to	the	obligations	of	VIEs	is	generally	limited	to	its	interests in	 these	entities.	In	certain	 instances,	 the	firm	provides	guarantees,	 including derivative	guarantees,	to	VIEs	or	holders	of	variable	interests	in	VIEs.

The	tables	below	present	information	about	nonconsolidated	VIEs	in	which	the firm	 holds	 variable	 interests.	 Nonconsolidated	VIEs	 are	 aggregated	 based	 on principal	business	activity.	The	nature	of	the	firm's	variable	interests	can	take different	forms,	as	described	in	the	rows	under	maximum	exposure	to	loss.	In	the tables	below:

Ÿ	The	maximum	exposure	 to	 loss	excludes	 the	benefit	of	offsetting	financial instruments	 that	 are	 held	 to	 mitigate	 the	 risks	 associated	 with	 these variable	interests.

Ÿ	For	retained	and	purchased	interests	and	loans	and	investments,	the	maximum exposure	to	loss	is	the	carrying	value	of	these	interests.

Ÿ	For	commitments	and	guarantees,	and	derivatives,	the	maximum	exposure	to loss	is	the	notional	amount,	which	does	not	represent	anticipated	losses	and also	has	not	been	reduced	by	unrealized	losses	already	recorded.	As	a	result, the	maximum	exposure	to	loss	exceeds	liabilities	recorded	for	commitments and	guarantees,	and	derivatives	provided	to	VIEs.

The	carrying	values	of	the	firm's	variable	interests	in	nonconsolidated	VIEs	are included	in	the	consolidated	statement	of	financial	condition	as	follows:

Ÿ	Substantially	all	assets	held	by	the	firm	related	to	mortgage-backed,	corporate CDO	 and	 CLO	 and	 other	 asset-backed	 VIEs	 and	 investment	 funds	 are included	 in	 "Financial	 instruments	 owned,	 at	 fair	 value."	 Substantially	 all liabilities	held	by	the	firm	related	to	corporate	CDO	and	CLO	and	other	asset- backed	 VIEs	 are	 included	 in	 "Financial	 instruments	 sold,	 but	 not	 yet purchased,	at	fair	value."

Ÿ	Assets	and	liabilities	held	by	the	firm	related	to	real	estate,	credit-related	and other	investing	VIEs	are	primarily	included	in	"Financial	instruments	owned, at	fair	value"	and	in	"Financial	instruments	sold,	but	not	yet	purchased,	at	fair value,"	and	"Other	liabilities	and	accrued	expenses,"	respectively.

Ÿ	Assets	 and	 liabilities	 held	 by	 the	 firm	 related	 to	 power-related	 VIEs	 are primarily	included	in	"Financial	instruments	owned,	at	fair	value"	and	"Other assets"	and	in	"Other	liabilities	and	accrued	expenses,"	respectively.

|  |  | Corporate | credit-related | Other |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Mortgage- | CDOs\tand | and\tother | asset- | Power- | Investment |  |
| in\tmillions | backed | CLOs | investing | backed | related | funds | Total |
| Assets\tin\tVIE | $79,171^\t2 | $23,842 | $9,244 | \t $3,510 | $147 | $1,898 | \t$117,812 |
| Carrying\tValue\tof\tthe\tFirm's\tVariable\tInterests |  |  |  |  |  |  |  |
| Assets | 6,269 | 1,193 | 1,801 | 220 | 32 | 4 | 9,519 |
| Liabilities | — | 12 | — | 30 | — | — | 42 |
| Maximum\tExposure\tto\tLoss\tin\tNonconsolidated\tVIEs |  |  |  |  |  |  |  |
| Retained\tinterests | 4,761 | 51 | — | — | — | — | 4,812 |
| Purchased\tinterests | 1,162 | 659 | — | 204 | — | — | 2,025 |
| Commitments\tand\tguarantees\t^1 | — | 1 | 438 | — | — | 1 | 440 |
| Derivatives\t^1 | 1,574 | 6,761 | — | 952 | — | — | 9,287 |
| Loans\tand\tinvestments | 39 | — | 1,801 | — | 32 | 4 | 1,876 |
| Total | $\t\t7,536^\t2 | $\t\t7,472 | $2,239 | \t $1,156 | $\t\t32 | $\t\t\t\t\t\t\t5 | \t$\t\t18,440 |

|  |  | Corporate | credit-related | Other |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Mortgage- | CDOs\tand | and\tother | asset- | Power- | Investment |  |
| in\tmillions | backed | CLOs | investing | backed | related | funds | Total |
| Assets\tin\tVIE | $94,047^\t2 | $20,340 | $8,974 | \t $4,593 | $519 | $2,208 | \t$130,681 |
| Carrying\tValue\tof\tthe\tFirm's\tVariable\tInterests |  |  |  |  |  |  |  |
| Assets | 7,004 | 911 | 1,495 | 352 | 289 | 5 | 10,056 |
| Liabilities | — | 63 | 3 | 24 | 2 | — | 92 |
| Maximum\tExposure\tto\tLoss\tin\tNonconsolidated\tVIEs |  |  |  |  |  |  |  |
| Retained\tinterests | 5,745 | 32 | — | — | — | — | 5,777 |
| Purchased\tinterests | 962 | 368 | — | 333 | — | — | 1,663 |
| Commitments\tand\tguarantees\t^1 | — | 1 | 373 | — | 46 | — | 420 |
| Derivatives\t^1 | 2,469 | 7,529 | — | 1,221 | — | — | 11,219 |
| Loans\tand\tinvestments | 82 | — | 1,495 | — | 288 | 5 | 1,870 |
| Total | $\t\t9,258^\t2 | $\t\t7,930 | $1,868 | \t $1,554 | $334 | $\t\t\t\t\t\t\t5 | \t$\t\t20,949 |

1.The	aggregate	amounts	include	$3.25	billion	and	$4.17	billion	as	of	December	2012	and	December	2011,	respectively,	related	to	guarantees	and	derivative	transactions	with	VIEs	to	which	the	firm transferred	assets.

2.Assets	in	VIE	and	maximum	exposure	to	loss	include	$3.57	billion	and	$1.72	billion,	respectively,	as	of	December	2012,	and	$6.15	billion	and	$2.62	billion,	respectively,	as	of	December	2011, related	to	CDOs	backed	by	mortgage	obligations.

# Consolidated	VIEs

The	tables	below	present	the	carrying	amount	and	classification	of	assets	and liabilities	 in	 consolidated	 VIEs,	 excluding	 the	 benefit	 of	 offsetting	 financial instruments	that	are	held	to	mitigate	the	risks	associated	with	the	firm's	variable interests.	Consolidated	VIEs	are	aggregated	based	on	principal	business	activity and	their	assets	and	liabilities	are	presented	net	of	intercompany	eliminations. The	majority	of	the	assets	in	principal-protected	notes	VIEs	are	intercompany and	are	eliminated	in	consolidation.

Substantially	 all	 the	 assets in	 consolidated	 VIEs	 can	 only	 be	 used to settle obligations	of	the	VIE.

The	tables	below	exclude	VIEs	in	which	the	firm	holds	a	majority	voting	interest if	(i)	the	VIE	meets	the	definition	of	a	business	and	(ii)	the	VIE's	assets	can	be used	for	purposes	other	than	the	settlement	of	its	obligations.

The	liabilities	of	real	estate,	credit-related	and	other	investing	VIEs	and	CDOs, mortgage-backed	 and	 other	 asset-backed	 VIEs	 do	 not	 have	 recourse	 to	 the general	credit	of	the	firm.

|  | Real	estate, | mortgage- |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | credit-related | backed\tand | Principal- |  |
|  | and\tother | other\tasset- | protected |  |
| in\tmillions | investing | backed | notes | Total |
| Assets |  |  |  |  |
| Cash\tand\tcash\tequivalents | $\t\t\t236 | $107 | $\t\t\t\t\t\t— | \t$\t\t\t343 |
| Cash\tand\tsecurities\tsegregated\tfor\tregulatory\tand\tother\tpurposes | 134 | — | 92 | 226 |
| Receivables\tfrom\tbrokers,\tdealers\tand\tclearing\torganizations | 5 | — | — | 5 |
| Financial\tinstruments\towned,\tat\tfair\tvalue | 2,958 | 763 | 124 | 3,845 |
| Other\tassets | 1,080 | — | — | 1,080 |
| Total | $4,413 | $870 | $\t\t\t216 | \t$5,499 |
| Liabilities |  |  |  |  |
| Other\tsecured\tfinancings | $\t\t\t594 | $699 | $\t\t\t301 | \t$1,594 |
| Financial\tinstruments\tsold,\tbut\tnot\tyet\tpurchased,\tat\tfair\tvalue | — | 107 | — | 107 |
| Unsecured\tshort-term\tborrowings,\tincluding\tthe\tcurrent\tportion\tof\nunsecured\tlong-term\tborrowings | — | — | 1,584 | 1,584 |
| Unsecured\tlong-term\tborrowings | 4 | — | 334 | 338 |
| Other\tliabilities\tand\taccrued\texpenses | 1,478 | — | — | 1,478 |
| Total | $2,076 | $806 | $2,219 | \t$5,101 |
|  |  | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | 171 |

|  | Real	estate, | CDOs, |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | credit-related | mortgage-backed | Principal- |  |
|  | and\tother | and\tother | protected |  |
| in\tmillions | investing | asset-backed | notes | Total |
| Assets |  |  |  |  |
| Cash\tand\tcash\tequivalents | $\t\t\t660 | $\t\t51 | $\t\t\t\t\t\t\t1 | \t$\t\t\t712 |
| Cash\tand\tsecurities\tsegregated\tfor\tregulatory\tand\tother\tpurposes | 139 | — | — | 139 |
| Receivables\tfrom\tbrokers,\tdealers\tand\tclearing\torganizations | 4 | — | — | 4 |
| Receivables\tfrom\tcustomers\tand\tcounterparties | — | 16 | — | 16 |
| Financial\tinstruments\towned,\tat\tfair\tvalue | 2,369 | 352 | 112 | 2,833 |
| Other\tassets | 1,552 | 437 | — | 1,989 |
| Total | $4,724 | $856 | $\t\t\t113 | \t$5,693 |
| Liabilities |  |  |  |  |
| Other\tsecured\tfinancings | $1,418 | $298 | $3,208 | \t$4,924 |
| Payables\tto\tcustomers\tand\tcounterparties | — | 9 | — | 9 |
| Financial\tinstruments\tsold,\tbut\tnot\tyet\tpurchased,\tat\tfair\tvalue | — | — | 2 | 2 |
| Unsecured\tshort-term\tborrowings,\tincluding\tthe\tcurrent\tportion\tof\nunsecured\tlong-term\tborrowings | 185 | — | 1,941 | 2,126 |
| Unsecured\tlong-term\tborrowings | 4 | — | 269 | 273 |
| Other\tliabilities\tand\taccrued\texpenses | 2,046 | 40 | — | 2,086 |
| Total | $3,653 | $347 | $5,420 | \t$9,420 |

# Other	Assets

Other	 assets	 are	 generally less liquid,	 non-financial	 assets.	 The table	 below presents	other	assets	by	type.

1.Net	of	accumulated	depreciation	and	amortization	of	$9.05	billion	and	$8.46	billion	as	of December	2012	and	December	2011,	respectively.

2.Includes	$149	million	of	intangible	assets	classified	as	held	for	sale.	See	Note	13	for	further information	about	goodwill	and	identifiable	intangible	assets. 3.See	Note	24	for	further	information	about	income	taxes.

4.Excludes	investments	accounted	for	at	fair	value	under	the	fair	value	option	where	the	firm would	otherwise	apply	the	equity	method	of	accounting	of	$5.54	billion	and	$4.17	billion	as	of December	 2012	 and	 December	 2011,	 respectively,	 which	 are	 included	 in	 "Financial instruments	owned,	at	fair	value."	The	firm	has	generally	elected	the	fair	value	option	for such	investments	acquired	after	the	fair	value	option	became	available.

5.Includes	 $16.77	 billion	 of	 assets	 related	 to	 the firm's reinsurance	 business	 which	 were classified	as	held	for	sale	as	of	December	2012.

# Assets	Held	for	Sale

In	the	fourth	quarter	of	2012,	the	firm	classified	its	reinsurance	business	within its	Institutional	Client	Services	segment	as	held	for	sale.	Assets	related	to	this business	of	$16.92	billion,	consisting	primarily	of	available-for-sale	securities and	 separate	 account	 assets	 at	 fair	 value,	 are	 included	 in	 "Other	 assets." Liabilities	 related	 to	 the	 business	 of	 $14.62	 billion	 are	 included	 in	 "Other liabilities	 and	 accrued	 expenses."	 See	 Note	 8	 for	 further	 information	 about insurance-related	assets	and	liabilities	held	for	sale	at	fair	value.

The	 firm	 expects	 to	 complete	 the	 sale	 of	 a	 majority	 stake	 in	 its	 reinsurance business	in	2013	and	does	not	expect	to	recognize	a	material	gain	or	loss	upon the	 sale.	 Upon	 completion	 of	 the	 sale,	 the	 firm	 will	 no	 longer	 consolidate this	business.

# Property,	Leasehold	Improvements	and	Equipment

Property,	 leasehold	 improvements	 and	 equipment	 included	 $6.20	 billion	 and $6.48	billion	as	of	December	2012	and	December	2011,	respectively,	related	to property,	 leasehold	 improvements	 and	 equipment	 that	 the	 firm	 uses	 in connection	with	 its	operations.	The	remainder	 is	held	by	 investment	entities, including	VIEs,	consolidated	by	the	firm.

Substantially	all	property	and	equipment	are	depreciated	on	a	straight-line	basis over	the	useful	life	of	the	asset.	Leasehold	improvements	are	amortized	on	a straight-line	basis	over	the	useful	 life	of	 the	 improvement	or	 the	 term	of	 the lease,	whichever	is	shorter.	Certain	costs	of	software	developed	or	obtained	for internal	use	are	capitalized	and	amortized	on	a	straight-line	basis	over	the	useful life	of	the	software.

Property,	 leasehold	 improvements	 and	 equipment	 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.	 The	 firm's	 policy	 for impairment	testing	of	property,	leasehold	improvements	and	equipment	is	the same	as	is	used	for	identifiable	intangible	assets	with	finite	lives.	See	Note	13	for further	information.

# Impairments

As	a	result	of	a	decline	in	the	market	conditions	in	which	certain	of	the	firm's consolidated	investments	operate,	during	2012	and	2011,	the	firm	tested	certain property,	 leasehold	 improvements	 and	 equipment,	 intangible	 assets	 and	 other assets	for	impairment	in	accordance	with	ASC	360.	The	carrying	value	of	these assets	 exceeded	 the	 projected	 undiscounted	 cash	 flows	 over	 the	 estimated remaining	useful	lives	of	these	assets;	as	such,	the	firm	determined	the	assets were	impaired	and	recorded	impairment	losses.	In	addition,	the	firm	sold	assets during	2012	and	2011	and	recognized	impairment	losses	prior	to	the	sale	of	these assets.	These	impairment	losses	represented	the	excess	of	the	carrying	values	of these	 assets	 over	 their	 estimated	 fair	 values,	 which	 are	 primarily	 level 3 measurements,	 using	 a	 combination	 of	 discounted	 cash	 flow	 analyses	 and relative	 value	 analyses,	 including	 the	 estimated	 cash	 flows	 expected	 to	 be received	from	the	disposition	of	certain	of	these	assets.

The	impairment	losses	were	approximately	$400	million	during	the	year	ended December	2012,	substantially	all	of	which	were	included	in	"Depreciation	and amortization"	within	the	firm's	Investing	&	Lending	segment.	Impairment	losses related	to	property,	leasehold	improvements	and	equipment	were	approximately $250	million,	including	approximately	$160	million	attributable	to	commodity- related	 assets.	 Impairment	 losses	 related	 to	 intangible	 and	 other	 assets	 were approximately	$150	million,	including	approximately	$80	million	attributable	to commodity-related	 assets	 and	 approximately	 $40	 million	 attributable	 to	 the firm's	 New	 York	 Stock	 Exchange	 (NYSE)	 Designated	 Market	 Maker (DMM)	rights.

The	impairment	losses	were	approximately	$440	million	during	the	year	ended December	2011	(approximately	$220	million	related	to	assets	classified	as	held for	sale,	primarily	related	to	Litton	Loan	Servicing	LP	(Litton),	approximately $120	million	related	to	commodity-related	intangible	assets	and	approximately $100	million	related	to	property,	leasehold	improvements	and	equipment),	all	of which	were	included	in	"Depreciation	and	amortization."	The	impairment	losses related	 to	 commodity-related	 intangible	 assets	 and	 property,	 leasehold improvements	and	equipment	were	included	in	the	firm's	Investing	&	Lending segment	and	the	impairment	losses	related	to	assets	classified	as	held	for	sale were	 principally	 included	 in	 the	 firm's	 Institutional	 Client	 Services	 segment. Litton	 was	 sold	 in	 the	 third	 quarter	 of	 2011	 and	 the	 firm	 received	 total consideration	that	approximated	the	firm's	adjusted	carrying	value	for	Litton. See	Note	18	for	further	information	about	the	sale	of	Litton.

The tables below present the carrying values of goodwill and identifiable intangible	assets,	which	are	included	in	"Other	assets."

| in	millions | 2012 | 2011 |
| :--- | :--- | :--- |
| Investment\tBanking: |  |  |
| Financial\tAdvisory | \t\t$\t\t\t\t\t\t\t1 | \t$\t\t\t\t\t\t\t4 |
| Underwriting | — | 1 |
| Institutional\tClient\tServices:\nFixed\tIncome,\tCurrency\tand\tCommodities\tClient\tExecution | 421 | 488 |
| Equities\tClient\tExecution | 565 | 677 |
| Investing\t&amp;\tLending | 281 | 369 |
| Investment\tManagement | 129 | 127 |
| Total | \t\t$1,397 | \t$1,666 |

# 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.	Qualitative	factors	are	assessed	to	determine	whether	it	is	more	likely than	not	that	the	fair	value	of	a	reporting	unit	is	less	than	its	carrying	amount.	If results	of	the	qualitative	assessment	are	not	conclusive,	a	quantitative	goodwill impairment	test	is	performed.

The	quantitative	goodwill	impairment	test	consists	of	two	steps.

Ÿ	The	first	step	compares	the	estimated	fair	value	of	each	reporting	unit	with	its estimated	net	book	value	(including	goodwill	and	identified	intangible	assets). If	the	reporting	unit's	fair	value	exceeds	its	estimated	net	book	value,	goodwill is	not	impaired.

Ÿ	If	the	estimated	fair	value	of	a	reporting	unit	is	less	than	its	estimated	net	book value,	the	second	step	of	the	goodwill	impairment	test	is	performed	to	measure the	amount	of	impairment	loss,	 if	any.	An	 impairment	 loss	 is	equal	 to	 the excess	of	the	carrying	amount	of	goodwill	over	its	fair	value.

Goodwill	was	tested	for	impairment,	using	a	quantitative	test,	during	the	fourth quarter	of	2012	and	goodwill	was	not	impaired.

To	estimate	the	fair	value	of	each	reporting	unit,	both	relative	value	and	residual income	 valuation	 techniques	 are	 used	 because	 the	 firm	 believes	 market participants	would	use	these	techniques	to	value	the	firm's	reporting	units.

Relative	value	techniques	apply	average	observable	price-to-earnings	multiples of	 comparable	 competitors	 to	 certain	 reporting	 units'	 net	 earnings.	 For	 other reporting	units,	fair	value	is	estimated	using	price-to-book	multiples	based	on residual	income	techniques,	which	consider	a	reporting	unit's	return	on	equity	in excess	of	the	firm's	cost	of	equity	capital.	The	net	book	value	of	each	reporting unit	 reflects	 an	 allocation	 of	 total	 shareholders'	 equity	 and	 represents	 the estimated	amount	of	shareholders'	equity	required	to	support	the	activities	of	the reporting	 unit	 under	 guidelines	 issued	 by	 the	 Basel	 Committee	 on	 Banking Supervision	(Basel	Committee)	in	December	2010.

# Identifiable	Intangible	Assets

The	table	below	presents	the	gross	carrying	amount,	accumulated	amortization and	net	carrying	amount	of

identifiable	intangible	assets	and	their	weighted	average	remaining	lives.

| $	in	millions |  | 2012 | (years) | 2011 |
| :--- | :--- | :--- | :--- | :--- |
| Customer\tlists | \t\t Gross\tcarrying\tamount | \t$\t1,099 |  | \t$\t1,119 |
|  | \t\t Accumulated\tamortization | (643) |  | (593) |
|  | \t\t Net\tcarrying\tamount | 456 | 8 | 526 |
| Commodities-related\tintangibles\t^1 | \t\t Gross\tcarrying\tamount | 513 |  | 595 |
|  | \t\t Accumulated\tamortization | (226) |  | (237) |
|  | \t\t Net\tcarrying\tamount | 287 | 10 | 358 |
| Television\tbroadcast\troyalties | \t\t Gross\tcarrying\tamount | 560 |  | 560 |
|  | \t\t Accumulated\tamortization | (186) |  | (123) |
|  | \t\t Net\tcarrying\tamount | 374 | 6 | 437 |
| Insurance-related\tintangibles\t^2 | \t\t Gross\tcarrying\tamount | 380 |  | 292 |
|  | \t\t Accumulated\tamortization | (231) |  | (146) |
|  | \t\t Net\tcarrying\tamount | 149 | N/A\t^2 | 146 |
| Other\t^3 | \t\t Gross\tcarrying\tamount | 950 |  | 950 |
|  | \t\t Accumulated\tamortization | (819) |  | (751) |
|  | \t\t Net\tcarrying\tamount | 131 | 12 | 199 |
| Total | \t\t Gross\tcarrying\tamount | 3,502 |  | 3,516 |
|  | \t\t Accumulated\tamortization | (2,105) |  | (1,850) |
|  | \t\t Net\tcarrying\tamount | \t$\t1,397 | 8 | \t$\t1,666 |

1.Primarily	includes	commodity-related	customer	contracts	and	relationships,	permits	and	access	rights.

2.Primarily	related	to	the	firm's	reinsurance	business,	which	is	classified	as	held	for	sale.	See	Note	12	for	further	information.

3.Primarily	includes	the	firm's	exchange-traded	fund	lead	market	maker	rights	and	NYSE	DMM	rights.

Substantially	 all	 of the	 firm's identifiable intangible	 assets	 are	 considered to have	finite	lives	and	are	amortized	(i)	over	their	estimated	lives,	(ii)	based	on economic	usage	for	certain	commodity-related	intangibles	or	(iii)	in	proportion to estimated gross profits or premium revenues.	 Amortization expense for identifiable	intangible	assets	is	included	in	"Depreciation	and	amortization."

The	tables	below	present	amortization	expense	for	identifiable	intangible	assets for	the	years	ended	December	2012,	December	2011	and	December	2010,	and the estimated future amortization expense through 2017 for identifiable intangible	assets	as	of	December	2012.

Identifiable intangible	assets	are tested	for	recoverability	whenever	events	or changes	in	circumstances	indicate	that	an	asset's	or	asset	group's	carrying	value may	not	be	recoverable.

If	a	recoverability	test	is	necessary,	the	carrying	value	of	an	asset	or	asset	group is	compared	to	the	total	of	the	undiscounted	cash	flows	expected	to	be	received over the remaining useful life and from the disposition of the asset or asset	group.

Ÿ	If	the	total	of	the	undiscounted	cash	flows	exceeds	the	carrying	value,	the	asset or	asset	group	is	not	impaired.

Ÿ	If	the	total	of	the	undiscounted	cash	flows	is	less	than	the	carrying	value,	the asset	 or asset	 group is	 not fully recoverable and an impairment loss is recognized	as	the	difference	between	the	carrying	amount	of	the	asset	or	asset group	and	its	estimated	fair	value.

See	Note	12	for	information	about	impairments	of	the	firm's	identifiable intangible	assets.

The table below presents deposits held in U.S. and non-U.S. offices, substantially	all	of	which	were	interest-bearing.	Substantially	all	U.S.	deposits were	held	at	Goldman	Sachs	Bank	USA	(GS	Bank	USA)	and	substantially	all non-U.S.

deposits	were	held	at	Goldman	Sachs	Bank	(Europe)	plc	(GS	Bank	Europe)	and Goldman	 Sachs	 International	 Bank	 (GSIB).	 On	 January	 18,	 2013,	 GS	 Bank Europe	 surrendered	 its	 banking	 license	 to	 the	 Central	 Bank	 of	 Ireland	 after transferring	its	deposits	to	GSIB.

1.Includes $5.10 billion	 and $4.53 billion	 as	 of	 December	 2012	 and	 December	 2011, respectively,	of	 time	deposits	accounted	 for	at	 fair	value	under	 the	 fair	value	option.	See Note	8	for	further	information	about	deposits	accounted	for	at	fair	value.

2.Includes	$44	million	greater	than	$100,000,	of	which	$7	million	matures	within	three	months, $24	million	matures	within	three	to	six	months,	$8	million	matures	within	six	to	twelve	months, and	$5	million	matures	after	twelve	months.

3.Substantially	all	were	greater	than	$100,000.

As	of	December	2012,	savings	and	demand	deposits,	which	represent	deposits with	no	stated	maturity,	were	$46.51	billion,	which	were	recorded	based	on	the amount	of	cash	received	plus	accrued	interest,	which	approximates	fair	value.	In addition,	 the	 firm	 designates	 certain	 derivatives	 as	 fair	 value	 hedges	 on substantially	all	of	its	time	deposits	for	which	it	has	not	elected	the	fair	value option.	Accordingly,	$18.52	billion	of	time	deposits	were	effectively	converted from	 fixed-rate	 obligations	 to	 floating-rate	 obligations	 and	 were	 recorded	 at amounts	that	generally	approximate	fair	value.	While	these	savings	and	demand deposits	and	time	deposits	are	carried	at	amounts	that	approximate	fair	value, they	are	not	accounted	for	at	fair	value	under	the	fair	value	option	or	at	fair	value in	accordance	with	other	U.S.	GAAP	and	therefore	are	not	included	in	the	firm's fair	value	hierarchy	in	Notes	6,	7	and	8.	Had	these	deposits	been	included	in	the firm's	fair	value	hierarchy,	they	would	have	been	classified	in	level	2.

# Short-Term	Borrowings

Short-term	borrowings	were	comprised	of	the	following:

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Other\tsecured\tfinancings\t(short-term) | \t\t$23,045 | \t $29,185 |
| Unsecured\tshort-term\tborrowings | 44,304 | 49,038 |
| Total | \t\t$67,349 | \t $78,223 |

See	Note	9	for	further	information	about	other	secured	financings.

Unsecured	 short-term	 borrowings	 include	 the	 portion	 of	 unsecured	 long-term borrowings	 maturing	 within	 one	 year	 of	 the	 financial	 statement	 date	 and unsecured	 long-term	 borrowings	 that	 are	 redeemable	 within	 one	 year	 of	 the financial	statement	date	at	the	option	of	the	holder.

The	firm	accounts	for	promissory	notes,	commercial	paper	and	certain	hybrid financial	instruments	at	fair	value	under	the	fair	value	option.	See	Note	8	for further	information	about	unsecured	short-term	borrowings	that	are	accounted for	 at	 fair	 value.	 The	 carrying	 value	 of	 short-term	 borrowings	 that	 are	 not recorded	at	fair	value	generally	approximates	fair	value	due	to	the	short-term nature	 of	 the	 obligations.	 While	 these	 short-term	 borrowings	 are	 carried	 at amounts	that	approximate	fair	value,	they	are	not	accounted	for	at	fair	value under	the	fair	value	option	or	at	fair	value	in	accordance	with	other	U.S.	GAAP and	therefore	are	not	included	in	the	firm's	fair	value	hierarchy	in	Notes	6,	7	and 8.	 Had these	 borrowings	 been	 included	 in	 the	 firm's	 fair	 value	 hierarchy, substantially	all	would	have	been	classified	in	level	2	as	of	December	2012.

The	table	below	presents	unsecured	short-term	borrowings.

|  | As	of	December |  |
| :--- | :--- | :--- |
| $\tin\tmillions | 2012 | 2011 |
| Current\tportion\tof\tunsecured\tlong-term\tborrowings^\t1,^\t2 | \t$25,344 | \t$28,836 |
| Hybrid\tfinancial\tinstruments | 12,295 | 11,526 |
| Promissory\tnotes | 260 | 1,328 |
| Commercial\tpaper | 884 | 1,491 |
| Other\tshort-term\tborrowings | 5,521 | 5,857 |
| Total | \t$44,304 | \t$49,038 |
| Weighted\taverage\tinterest\trate^\t3 | 1.57% | 1.89% |

1.As of	 December	 2012,	 no	 borrowings	 guaranteed	 by	 the	 Federal	 Deposit	 Insurance Corporation	 (FDIC)	 under	 the	 Temporary	 Liquidity	 Guarantee	 Program	 (TLGP)	 were outstanding	and	 the	program	had	expired	 for	new	 issuances.	 Includes	$8.53	billion	as	of December	2011,	issued	by	Group	Inc.	and	guaranteed	by	the	FDIC	under	the	TLGP.

3.The	 weighted	 average	 interest	 rates	 for	 these	 borrowings	 include	 the	 effect	 of	 hedging activities	and	exclude	financial	instruments	accounted	for	at	fair	value	under	the	fair	value option.	See	Note	7	for	further	information	about	hedging	activities.

# Long-Term	Borrowings

Long-term	borrowings	were	comprised	of	the	following:

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Other\tsecured\tfinancings\t(long-term) | \t$\t\t\t\t8,965 | \t$\t\t\t\t8,179 |
| Unsecured\tlong-term\tborrowings | 167,305 | 173,545 |
| Total | \t$176,270 | \t$181,724 |

See	Note	9	for	further information	about	other	secured	financings.	The table below	presents	unsecured	long-term

borrowings extending through 2061 and consisting principally of senior borrowings.

2.Floating	interest	rates	generally	are	based	on	LIBOR	or	the	federal	funds	target	rate.	Equity-linked	and	indexed	instruments	are	included	in	floating-rate	obligations.

The	table	below	presents	unsecured	long-term	borrowings	by	maturity	date.	In the	table	below:

Ÿ	unsecured	 long-term	 borrowings	 maturing	 within	 one	 year	 of	 the	 financial statement	 date	 and	 unsecured	 long-term	 borrowings	 that	 are	 redeemable within	one	year	of	the	financial	statement	date	at	the	option	of	the	holders	are included	as	unsecured	short-term	borrowings;

Ÿ	unsecured	 long-term	borrowings	 that	are	repayable	prior	 to	maturity	at the option	of	the	firm	are	reflected	at	their	contractual	maturity	dates;	and

Ÿ	unsecured	long-term	borrowings	that	are	redeemable	prior	to	maturity	at	the option	 of	 the	 holders	 are	 reflected	 at	 the	 dates	 such	 options	 become exercisable.

| in	millions | Group	Inc. | Subsidiaries | Total |
| :--- | :--- | :--- | :--- |
| 2014 | $\t\t22,279 | $\t\t\t\t496 | \t$\t\t22,775 |
| 2015 | 20,734 | 411 | 21,145 |
| 2016 | 21,717 | 172 | 21,889 |
| 2017 | 20,218 | 494 | 20,712 |
| 2018\t-\tthereafter | 73,731 | 7,053 | 80,784 |
| Total\t^1 | $158,679 | $8,626 | \t$167,305 |

1.Includes	 $10.51	 billion	 related	 to	 interest	 rate	 hedges	 on	 certain	 unsecured	 long-term

The	firm	designates	certain	derivatives	as	fair	value	hedges	to	effectively	convert a	substantial	portion	of	its	fixed-rate	unsecured	long-term	borrowings	which	are not	 accounted	 for	 at	 fair	 value	 into	 floating-rate	 obligations.	 Accordingly, excluding	 the	cumulative	 impact	of	changes	 in	 the	firm's	credit	spreads,	 the carrying	value	of	unsecured	long-term	borrowings	approximated	fair	value	as	of December	2012	and	December	2011.	See	Note	7	for	further	information	about hedging	activities.	For	unsecured	long-term	borrowings	for	which	the	firm	did not	elect	the	fair	value	option,	the	cumulative	impact	due	to	changes	in	the	firm's own	credit	spreads	would	be	an	increase	of	less	than	2%	and	a	reduction	of	less than	4%	in	the	carrying	value	of	total	unsecured	long-term	borrowings	as	of December	2012	and	December	2011,	respectively.	As	these	borrowings	are	not accounted	 for	 at	 fair	 value	 under	 the	 fair	 value	 option	 or	 at	 fair	 value	 in accordance	with	other	U.S.	GAAP,	their	fair	value	is	not	included	in	the	firm's fair	value	hierarchy	in	Notes	6,	7	and	8.	Had	these	borrowings	been	included	in the	firm's	fair	value	hierarchy,	substantially	all	would	have	been	classified	in level	2	as	of	December	2012.

The	table	below	presents	unsecured	long-term	borrowings,	after	giving	effect	to hedging	activities	that	converted	a	substantial	portion	of	fixed-rate	obligations	to floating-rate	obligations.

|  |  | As	of	December	2012 |  |  | As	of	December	2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| in\tmillions | \tGroup\tInc. | \tSubsidiaries | Total | \tGroup\tInc. | \tSubsidiaries | Total |
| Fixed-rate\tobligations |  |  |  |  |  |  |
| At\tfair\tvalue | $\t\t\t\t\t\t\t\t\t28 | $\t\t\t\t\t94 | \t$\t\t\t\t\t\t\t122 | $\t\t\t\t\t\t\t\t\t10 | $\t\t\t\t\t66 | \t$\t\t\t\t\t\t\t\t\t76 |
| At\tamortized\tcost\t^1 | 22,500 | 2,047 | 24,547 | 26,839 | 1,934 | 28,773 |
| Floating-rate\tobligations |  |  |  |  |  |  |
| At\tfair\tvalue | 8,166 | 4,305 | 12,471 | 12,903 | 4,183 | 17,086 |
| At\tamortized\tcost\t^1 | 127,985 | 2,180 | 130,165 | 126,470 | 1,140 | 127,610 |
| Total | $158,679 | $8,626 | \t$167,305 | $166,222 | $7,323 | \t$173,545 |

1.The	weighted	average	interest	rates	on	the	aggregate	amounts	were	2.47%	(5.26%	related	to	fixed-rate	obligations	and	1.98%	related	to	floating-rate	obligations)	and	2.59%	(5.18%	related	to	fixed- rate	obligations	and	2.03%	related	to	floating-rate	obligations)	as	of	December	2012	and	December	2011,	respectively.	These	rates	exclude	financial	instruments	accounted	for	at	fair	value	under	the fair	value	option.

# Subordinated	Borrowings

Unsecured	 long-term	 borrowings	 include	 subordinated	 debt	 and	 junior subordinated	debt.	Junior	subordinated	debt	is	junior	in	right	of	payment	to	other subordinated	borrowings,	which	are	junior	to	senior	borrowings.	As	of

December	2012	and	December	2011,	subordinated	debt	had	maturities	ranging from	2015	to	2038	and	2017	to	2038,	respectively.	The	table	below	presents subordinated	borrowings.

|  | As	of	December	2012 | As	of	December	2012 |  | As	of	December	2011 | As	of	December	2011 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Par | Carrying |  | Par | Carrying |  |
| $\tin\tmillions | Amount | Amount | \tRate^\t1 | Amount | Amount | \tRate^\t1 |
| Subordinated\tdebt\t^2 | \t $14,409 | $17,358 | \t 4.24% | \t$14,310 | \t $17,362 | \t 4.39% |
| Junior\tsubordinated\tdebt | 2,835 | 4,228 | \t 3.16% | 5,085 | 6,533 | \t 2.43% |
| Total\tsubordinated\tborrowings | \t $17,244 | $21,586 | \t 4.06% | \t$19,395 | \t $23,895 | \t 3.87% |

1.Weighted	average	interest	rate	after	giving	effect	to	fair	value	hedges	used	to	convert	these	fixed-rate	obligations	into	floating-rate	obligations.	See	Note	7	for	further	information	about	hedging activities.	See	below	for	information	about	interest	rates	on	junior	subordinated	debt.

2.Par	amount	and	carrying	amount	of	subordinated	debt	issued	by	Group	Inc.	was	$13.85	billion	and	$16.80	billion,	respectively,	as	of	December	2012,	and	$13.75	billion	and	$16.80	billion, respectively,	as	of	December	2011.

# Junior	Subordinated	Debt

Junior	Subordinated	Debt	Issued	to	APEX	Trusts. 	In	2007,	Group	Inc. issued	 a	 total	 of	 $2.25	 billion	 of	 remarketable	 junior	 subordinated	 debt	 to Goldman	 Sachs	 Capital	 II	 and	 Goldman	 Sachs	 Capital	 III	 (APEX	 Trusts), Delaware	statutory	trusts.	The	APEX	Trusts	issued	$2.25	billion	of	guaranteed perpetual	Normal	Automatic	Preferred	Enhanced	Capital	Securities	(APEX)	to third	parties	and	a	de	minimis	amount	of	common	securities	to	Group	Inc.	Group Inc.	also	entered	into	contracts	with	the	APEX	Trusts	to	sell	$2.25	billion	of Group	 Inc.	 perpetual	 non-cumulative	 preferred	 stock	 (the	 stock	 purchase contracts).	 See	 Note	 19	 for	 more	 information	 about	 the	 preferred	 stock	 that Group	Inc.	has	issued	in	connection	with	the	stock	purchase	contracts.

The	firm	accounted	for	the	stock	purchase	contracts	as	equity	instruments	and, accordingly,	recorded	the	cost	of	the	stock	purchase	contracts	as	a	reduction	to additional	paid-in	capital.

During	the	first	quarter	of	2012,	pursuant	to	a	remarketing	provided	for	by	the initial	terms	of	the	junior	subordinated	debt,	Goldman	Sachs	Capital	II	sold	all	of its	$1.75	billion	of	junior	subordinated	debt	to	Murray	Street	Investment	Trust	I (Murray	 Street	Trust),	 a	 new	 trust	 sponsored	 by	 the	 firm.	 On	 June	 1,	 2012, pursuant	 to	 the	stock	purchase	contracts,	Goldman	Sachs	Capital	II	used	 the proceeds	 of	 this	 sale	 to	 purchase	 shares	 of	 Group	 Inc.'s	 Perpetual	 Non- Cumulative	Preferred	Stock,	Series	E	(Series	E	Preferred	Stock).

During	the	third	quarter	of	2012,	pursuant	to	a	remarketing	provided	for	by	the initial	terms	of	the	junior	subordinated	debt,	Goldman	Sachs	Capital	III	sold	all of	its	$500	million	of	junior	subordinated	debt	to	Vesey	Street	Investment	Trust I	(Vesey	Street	Trust),	a	new	trust	sponsored	by	the	firm.	On	September	4,	2012, pursuant	to	the	stock	purchase	contracts,	Goldman	Sachs	Capital	III	used	the proceeds	 of	 this	 sale	 to	 purchase	 shares	 of	 Group	 Inc.'s	 Perpetual	 Non- Cumulative	Preferred	Stock,	Series	F	(Series	F	Preferred	Stock).

In	connection	with	the	remarketing	of	the	junior	subordinated	debt	to	the	Murray Street	Trust	and	Vesey	Street	Trust	(together,	the	2012	Trusts),	pursuant	to	the terms	of	 the	 junior	subordinated	debt,	 the	 interest	rate	and	other	 terms	were modified.	 Following	 such	 sales,	 the	 firm	 pays	 interest	 semi-annually	 on	 the $1.75	billion	of	junior	subordinated	debt	held	by	the	Murray	Street	Trust	at	a fixed	annual	rate	of	4.647%	and	the	debt	matures	on	March	9,	2017	and	on	the $500	million	of	junior	subordinated	debt	held	by	the	Vesey	Street	Trust	at	a fixed	annual	rate	of	4.404%	and	the	debt	matures	on	September	1,	2016.	To	fund the	purchase	of	the	junior	subordinated	debt,	the	2012	Trusts	issued	an	aggregate of	 $2.25	 billion	 of	 senior	 guaranteed	 trust	 securities.	 The	 2012	 Trusts	 are required	to	pay	distributions	on	their	senior	guaranteed	trust	securities	in	the same	amounts	and	on	the	same	dates	that	they	are	scheduled	to	receive	interest on	 the	 junior	 subordinated	 debt	 they	 hold,	 and	 are	 required	 to	 redeem	 their respective	 senior	 guaranteed	 trust	 securities	 upon	 the	 maturity	 or	 earlier redemption	 of	 the	 junior	 subordinated	 debt	 they	 hold.	 Group	 Inc.	 fully	 and unconditionally	 guarantees	 the	 payment	 of	 these	 distribution	 and	 redemption amounts	when	due	on	a	senior	basis	and,	as	such,	the	$2.25	billion	of	junior subordinated	 debt	 held	 by	 the	 2012	Trusts	 for	 the	 benefit	 of	 investors	 is	 no longer	classified	as	junior	subordinated	debt.

The	firm	has	the	right	to	defer	payments	on	the	junior	subordinated	debt,	subject to	limitations.	During	any	such	extension	period,	the	firm	will	not	be	permitted to,	 among	 other	 things,	 pay	 dividends	 on	 or	 make	 certain	 repurchases	 of	 its common	or	preferred	stock.	If	the	firm	were	to	defer	payment	of	interest	on	the junior	subordinated	debt	and	 the	2012	Trusts	were	 therefore	unable	 to	make scheduled	distributions	to	the	holders	of	the	senior	guaranteed	trust	securities, under	the	guarantee,	Group	Inc.	would	be	obligated	to	make	those	payments	to the	holders	of	the	senior	guaranteed	trust	securities.

The	APEX	Trusts	and	the	2012	Trusts	are	wholly-owned	finance	subsidiaries	of the	 firm	 for	 regulatory	 and	 legal	 purposes	 but	 are	 not	 consolidated	 for accounting	purposes.

In	connection	with	the	APEX	issuance,	the	firm	covenanted	in	favor	of	certain	of its	debtholders,	who	were	initially	and	are	currently	the	holders	of	Group	Inc.'s 6.345%	Junior	Subordinated	Debentures	due	February	15,	2034,	that,	subject	to certain	exceptions,	the	firm	would	not	redeem	or	purchase	APEX	or	shares	of Group	Inc.'s	Series	E	Preferred	Stock	or	Series	F	Preferred	Stock	prior	to	the date	 that	 is	 ten	 years	 after	 the	 applicable	 stock	 purchase	 date,	 unless	 the applicable	redemption	or	purchase	price	does	not	exceed	a	maximum	amount determined	by	reference	to	the	aggregate	amount	of	net	cash	proceeds	that	the firm	has	received	from	the	sale	of	qualifying	securities.

# Junior	Subordinated	Debt	Issued	in	Connection	with	Trust	Preferred

Securities.	Group	Inc.	issued	$2.84	billion	of	junior	subordinated	debentures	in 2004	to	Goldman	Sachs	Capital	I	(Trust),	a	Delaware	statutory	trust.	The	Trust issued	$2.75	billion	of	guaranteed	preferred	beneficial	interests	to	third	parties and	 $85	 million	 of	 common	 beneficial	 interests	 to	 Group	 Inc.	 and	 used	 the proceeds	from	the	issuances	to	purchase	the	junior	subordinated	debentures	from Group	 Inc.	 The	 Trust	 is	 a	 wholly-owned	 finance	 subsidiary	 of	 the	 firm	 for regulatory	and	legal	purposes	but	is	not	consolidated	for	accounting	purposes.

The	 firm	 pays	 interest	 semi-annually	 on	 the	 debentures	 at	 an	 annual	 rate	 of 6.345%	and	the	debentures	mature	on	February	15,	2034.	The	coupon	rate	and the	 payment	 dates	 applicable	 to	 the	 beneficial	 interests	 are	 the	 same	 as	 the interest	rate	and	payment	dates	for	the	debentures.	The	firm	has	the	right,	from time	to	time,	to	defer	payment	of	interest	on	the	debentures,	and	therefore	cause payment	on	the	Trust's	preferred	beneficial	interests	to	be	deferred,	in	each	case up	to	ten	consecutive	semi-annual	periods.	During	any	such	extension	period, the	firm	will	not	be	permitted	to,	among	other	things,	pay	dividends	on	or	make certain	repurchases	of	its	common	stock.	The	Trust	is	not	permitted	to	pay	any distributions	on	the	common	beneficial	interests	held	by	Group	Inc.	unless	all dividends	payable	on	the	preferred	beneficial	interests	have	been	paid	in	full.

# Other	Liabilities	and	Accrued	Expenses

The	table	below	presents	other	liabilities	and	accrued	expenses	by	type.

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Compensation\tand\tbenefits | \t\t$\t\t8,292 | \t $\t\t5,701 |
| Insurance-related\tliabilities\t^1 | 10,274 | 18,614 |
| Noncontrolling\tinterests\t^2 | 508 | 1,450 |
| Income\ttax-related\tliabilities\t^3 | 2,724 | 533 |
| Employee\tinterests\tin\tconsolidated\tfunds | 246 | 305 |
| Subordinated\tliabilities\tissued |  |  |
| by\tconsolidated\tVIEs | 1,360 | 1,090 |
| Accrued\texpenses\tand\tother\t^4 | 18,991 | 4,108 |
| Total | \t\t$42,395 | \t $31,801 |

1.As	of	December	2012,	certain	insurance-related	liabilities	were	classified	as	held	for	sale	and included	within	"Accrued	expenses	and	other."	See	Note	12	for	further	information.

2.Includes	 $419	 million	 and	 $1.17	 billion	 related to	 consolidated investment funds	 as	 of December	2012	and	December	2011,	respectively. 3.See	Note	24	for	further	information	about	income	taxes.

4.Includes	 $14.62	 billion	 of	 liabilities	 related	 to	 the	 firm's	 reinsurance	 business	 which	 were classified	as	held	for	sale	as	of	December	2012.	See	Note	12	for	further	information.

The	table	below	presents	insurance-related	liabilities	by	type.

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Separate\taccount\tliabilities | \t\t$\t\t\t\t\t\t\t\t— | \t$\t\t3,296 |
| Liabilities\tfor\tfuture\tbenefits\nand\tunpaid\tclaims | 10,274 | 14,213 |
| Contract\tholder\taccount\tbalances | — | 835 |
| Reserves\tfor\tguaranteed\tminimum\tdeath\tand\tincome\tbenefits | — | 270 |
| Total\t^1 | \t\t $10,274 | \t$18,614 |

Separate	 account	 liabilities	 are	 supported	 by	 separate	 account	 assets, representing	segregated	contract	holder	funds	under	variable	annuity	and	 life insurance	 contracts.	 As	 of	 December	 2011,	 separate	 account	 assets	 were included	in	"Cash	and	securities	segregated	for	regulatory	and	other	purposes."

Liabilities	for	future	benefits	and	unpaid	claims	include	liabilities	arising	from reinsurance	provided	by	the	firm	to	other	insurers.	The	firm	had	a	receivable	of $1.30	billion	as	of	December	2011	related	to	such	reinsurance	contracts,	which was	reported	in	"Receivables	from	customers	and	counterparties."	In	addition, the	firm	has	ceded	risks	to	reinsurers	related	to	certain	of	its	liabilities	for	future benefits	 and	 unpaid	 claims	 and	 had	 a	 receivable	 of $648	 million as	 of December	2011	related	 to	such	reinsurance	contracts,	which	was	reported	 in "Receivables	 from	 customers	 and	 counterparties."	 Contracts	 to	 cede	 risks	 to reinsurers	do	not	relieve	the	firm	of	its	obligations	to	contract	holders.	Liabilities for	future	benefits	and	unpaid	claims	include	$10.27	billion	and	$8.75	billion carried	 at	 fair	 value	 under	 the	 fair	 value	 option	 as	 of	 December	 2012	 and December	2011,	respectively.

Contract	 holder	 account balances primarily include fixed annuities under reinsurance	contracts.

Reserves	for	guaranteed	minimum	death	and	income	benefits	represent	a	liability for	 the	 expected	 value	 of	 guaranteed	 benefits	 in	 excess	 of	 projected	 annuity account	balances.	These	reserves	are	based	on	total	payments	expected	to	be made	less	total	fees	expected	to	be	assessed	over	the	life	of	the	contract.	As	of December	2011,	such	reserves	were	related	to	$5.52	billion	of	contract	holder account	 balances.	The	 net	 amount	 at	 risk,	 representing	 guaranteed	 minimum death	and	income	benefits	in	excess	of	contract	holder	account	balances,	was $1.51	billion	as	of	December	2011.	The	weighted	average	attained	age	of	these contract	holders	was	69	years	as	of	December	2011.

# Commitments,	Contingencies	and	Guarantees

# Commitments

The	table	below	presents	the	firm's	commitments.

|  | Commitment	Amount	by	Period<br>of	Expiration	as	of	December	2012 | Commitment	Amount	by	Period<br>of	Expiration	as	of	December	2012 | Commitment	Amount	by	Period<br>of	Expiration	as	of	December	2012 |  | Total	Commitments<br>as	of	December | Total	Commitments<br>as	of	December |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | 2014- | 2016- | 2018- |  |  |
| in\tmillions | 2013 | 2015 | 2017 | Thereafter | 2012 | 2011 |
| Commitments\tto\textend\tcredit\t^1\nCommercial\tlending:\t^2 |  |  |  |  |  |  |
| Investment-grade | \t$\t\t7,765 | \t$11,632 | \t$33,620 | $\t\t\t\t719 | \t$\t\t53,736 | \t$\t\t51,281 |
| Non-investment-grade | 2,114 | 4,462 | 9,833 | 4,693 | 21,102 | 14,217 |
| Warehouse\tfinancing | 556 | 228 | — | — | 784 | 247 |
| Total\tcommitments\tto\textend\tcredit | 10,435 | 16,322 | 43,453 | 5,412 | 75,622 | 65,745 |
| Contingent\tand\tforward\tstarting\tresale\tand\tsecurities\nborrowing\tagreements\t^3 | 47,599 | — | — | — | 47,599 | 54,522 |
| Forward\tstarting\trepurchase\tand\tsecured\tlending\tagreements\t^3 | 6,144 | — | — | — | 6,144 | 17,964 |
| Letters\tof\tcredit\t^4 | 614 | 160 | — | 15 | 789 | 1,353 |
| Investment\tcommitments | 1,378 | 2,174 | 258 | 3,529 | 7,339 | 9,118 |
| Other | 4,471 | 53 | 31 | 69 | 4,624 | 5,342 |
| Total\tcommitments | \t$70,641 | \t$18,709 | \t$43,742 | $9,025 | \t$142,117 | \t$154,044 |

1.Commitments	to	extend	credit	are	presented	net	of	amounts	syndicated	to	third	parties.

2.Includes	commitments	associated	with	the	former	William	Street	credit	extension	program.

3.These	agreements	generally	settle	within	three	business	days.

4.Consists	of	commitments	under	letters	of	credit	issued	by	various	banks	which	the	firm	provides	to	counterparties	in	lieu	of	securities	or	cash	to	satisfy	various	collateral	and	margin	deposit requirements.

# Commitments	to	Extend	Credit

The	 firm's	 commitments	 to	 extend	 credit	 are	 agreements	 to	 lend	 with	 fixed termination	dates	and	depend	on	the	satisfaction	of	all	contractual	conditions	to borrowing.	The	 total	 commitment	 amount	 does	 not	 necessarily	 reflect	 actual future	cash	flows	because	the	firm	may	syndicate	all	or	substantial	portions	of these	 commitments	 and	 commitments	 can	 expire	 unused	 or	 be	 reduced	 or cancelled	at	the	counterparty's	request.

The	 firm	 generally	 accounts	 for	 commitments	 to	 extend	 credit	 at	 fair	 value. Losses,	 if	 any,	 are	 generally	 recorded,	 net	 of	 any	 fees	 in	 "Other	 principal transactions."

As	 of	 December	 2012,	 approximately	 $16.09	 billion	 of	 the	 firm's	 lending commitments	were	held	for	investment	and	were	accounted	for	on	an	accrual basis.	As	of	December	2012,	the	carrying	value	and	the	estimated	fair	value	of such	 lending	 commitments	 were	 liabilities	 of	 $63	 million	 and	 $523	 million, respectively.	As	these	lending	commitments	are	not	accounted	for	at	fair	value under	the

fair	value	option	or	at	fair	value	in	accordance	with	other	U.S.	GAAP,	their	fair value	is	not	included	in	the	firm's	fair	value	hierarchy	in	Notes	6,	7	and	8.	Had these	commitments	been	included	in	the	firm's	fair	value	hierarchy,	they	would have	primarily	been	classified	in	level	3	as	of	December	2012.

Commercial Lending.	The firm's	 commercial	 lending	 commitments	 are extended	 to	 investment-grade	 and	 non-investment-grade	 corporate	 borrowers. Commitments	to	investment-grade	corporate	borrowers	are	principally	used	for operating	liquidity	and	general	corporate	purposes.	The	firm	also	extends	lending commitments	 in	 connection	 with	 contingent	 acquisition	 financing	 and	 other types	 of	 corporate	 lending	 as	 well	 as	 commercial	 real	 estate	 financing. Commitments	that	are	extended	for	contingent	acquisition	financing	are	often intended	to	be	short-term	in	nature,	as	borrowers	often	seek	to	replace	them	with other	funding	sources.

Sumitomo	Mitsui	Financial	Group,	Inc.	(SMFG)	provides	the	firm	with	credit loss	protection	on	certain	approved	 loan	commitments	(primarily	 investment- grade	 commercial	 lending	 commitments).	 The	 notional	 amount	 of	 such	 loan commitments	was	$32.41	billion	and	$31.94	billion	as	of	December	2012	and December	2011,	respectively.	The	credit	loss	protection	on	loan	commitments provided	by	SMFG	is	generally	limited	to	95%	of	the	first	loss	the	firm	realizes on	 such	 commitments,	 up	 to	 a	 maximum	 of	 approximately	 $950	 million.	 In addition,	subject	to	the	satisfaction	of	certain	conditions,	upon	the	firm's	request, SMFG	 will	 provide	 protection	 for 70% of	 additional	 losses	 on	 such commitments,	 up	 to	 a	 maximum	 of	 $1.13	 billion,	 of	 which	 $300	 million	 of protection	had	been	provided	as	of	both	December	2012	and	December	2011. The	firm	also	uses	other	financial	instruments	to	mitigate	credit	risks	related	to certain	 commitments	 not	 covered	 by	 SMFG.	 These	 instruments	 primarily include	 credit	 default	 swaps	 that	 reference	 the	 same	 or	 similar	 underlying instrument	or	entity	or	credit	default	swaps	that	reference	a	market	index.

Warehouse Financing. The	 firm	 provides	 financing	 to	 clients	 who warehouse	financial	assets.	These	arrangements	are	secured	by	the	warehoused assets,	primarily	consisting	of	commercial	mortgage	loans.

# Contingent	and	Forward	Starting	Resale	and	Securities	Borrowing Agreements/Forward	 Starting	 Repurchase and	 Secured Lending Agreements

The	firm	enters	into	resale	and	securities	borrowing	agreements	and	repurchase and	secured	lending	agreements	that	settle	at	a	future	date.	The	firm	also	enters into	 commitments	 to	 provide	 contingent	 financing	 to	 its	 clients	 and counterparties	 through	 resale	 agreements.	 The	 firm's	 funding	 of	 these commitments	 depends	 on	 the	 satisfaction	 of	 all	 contractual	 conditions	 to	 the resale	agreement	and	these	commitments	can	expire	unused.

# Investment	Commitments

The	firm's	investment	commitments	consist	of	commitments	to	invest	in	private equity,	real	estate	and	other	assets	directly	and	through	funds	that	the	firm	raises and	manages.	These	commitments	include	$872	million	and	$1.62	billion	as	of December	2012	and	December	2011,	respectively,	related	to	real	estate	private investments	 and	 $6.47	 billion	 and	 $7.50	 billion	 as	 of	 December	 2012	 and December	2011,	respectively,	related	to	corporate	and	other	private	investments. Of	 these	amounts,	$6.21	billion	and	$8.38	billion	as	of	December	2012	and December	2011,	respectively,	relate	to	commitments	to	invest	in	funds	managed by	the	firm,	which	will	be	funded	at	market	value	on	the	date	of	investment.

# Leases

The	 firm	 has	 contractual	 obligations	 under	 long-term	 noncancelable	 lease agreements,	principally	for	office	space,	expiring	on	various	dates	through	2069. Certain	agreements	are	subject	to	periodic	escalation	provisions	for	increases	in real	estate	taxes	and	other	charges.	The	table	below	presents	future	minimum rental	payments,	net	of	minimum	sublease	rentals.

|  | As	of |
| :--- | :--- |
| in\tmillions | December\t2012 |
| 2013 | $\t\t\t439 |
| 2014 | 407 |
| 2015 | 345 |
| 2016 | 317 |
| 2017 | 306 |
| 2018\t-\tthereafter | 1,375 |
| Total | $3,189 |

Operating	 leases	 include	office	space	held	 in	excess	of	current	requirements. Rent	expense	relating	to	space	held	for	growth	is	included	in	"Occupancy."	The firm	records	a	liability,	based	on	the	fair	value	of	the	remaining	lease	rentals reduced	by	any	potential	or	existing	sublease	rentals,	for	leases	where	the	firm has	ceased	using	the	space	and	management	has	concluded	that	the	firm	will	not derive	any	future	economic	benefits.	Costs	to	terminate	a	lease	before	the	end	of its	term	are	recognized	and	measured	at	fair	value	on	termination.

# Contingencies

Legal	Proceedings.	See	Note	27	for information	about legal	proceedings, including	certain	mortgage-related	matters.

Certain	 Mortgage-Related	 Contingencies.	 There	 are	 multiple	 areas	 of focus	 by	 regulators,	 governmental	 agencies	 and	 others	 within	 the	 mortgage market	 that	 may	 impact	 originators,	 issuers,	 servicers	 and	 investors.	 There remains	 significant	 uncertainty	 surrounding	 the	 nature	 and	 extent	 of	 any potential	exposure	for	participants	in	this	market.

Ÿ	Representations	and	Warranties.	The	 firm	 has	 not	 been	 a	 significant originator	 of	 residential	 mortgage	 loans.	 The	 firm	 did	 purchase	 loans originated	by	others	and	generally	received	loan-level	representations	of	the type	described	below	from	the	originators.	During	the	period	2005	through 2008,	 the	 firm	 sold	 approximately $10 billion	 of	 loans	 to	 government- sponsored	enterprises	and	approximately	$11	billion	of	loans	to	other	third parties.	In	addition,	the	firm	transferred	loans	to	trusts	and	other	mortgage securitization	 vehicles.	 As	 of	 December	 2012	 and	 December	 2011,	 the outstanding	 balance	 of	 the	 loans	 transferred	 to	 trusts	 and	 other	 mortgage securitization	 vehicles	 during	 the	 period	 2005	 through	 2008	 was approximately	$35	billion	and	$42	billion,	respectively.	This	amount	reflects paydowns	and	cumulative	losses	of	approximately	$90	billion	($20	billion	of which	 are	 cumulative	 losses)	 as	 of	 December	 2012	 and	 approximately $83	billion	($17	billion	of	which	are	cumulative	losses)	as	of	December	2011. A	 small	 number	 of	 these	 Goldman	 Sachs-issued	 securitizations	 with	 an outstanding	 principal	 balance	 of $540	 million and	 total	 paydowns	 and cumulative	 losses	 of	 $1.52	 billion	 ($508	 million	 of	 which	 are	 cumulative losses)	 as	 of	 December	 2012,	 and	 an	 outstanding	 principal	 balance	 of $635	 million and	 total	 paydowns	 and	 cumulative	 losses	 of	 $1.42	 billion ($465	million	of	which	are	cumulative	losses)	as	of	December	2011,	were structured	 with	 credit	 protection	 obtained	 from	 monoline	 insurers.	 In connection	with	both	sales	of	loans	and	securitizations,	the	firm	provided	loan level	 representations	 of	 the	 type	 described	 below	 and/or	 assigned	 the	 loan level	representations	from	the	party	from	whom	the	firm	purchased	the	loans.

The	 loan	 level	 representations	 made	 in	 connection	 with	 the	 sale	 or securitization	of	mortgage	loans	varied	among	transactions	but	were	generally detailed	representations	applicable	to	each	loan	in	the	portfolio	and	addressed matters	 relating	 to	 the	 property,	 the	 borrower	 and	 the	 note.	 These representations	 generally	 included,	 but	 were	 not	 limited	 to,	 the	 following: (i)	certain	attributes	of	the	borrower's	financial	status;	(ii)	loan-to-value	ratios, owner	 occupancy	 status	 and	 certain	 other	 characteristics	 of	 the	 property; (iii)	the	lien	position;	(iv)	the	fact	that	the	loan	was	originated	in	compliance with	law;	and	(v)	completeness	of	the	loan	documentation.

The	firm	has	received	repurchase	claims	for	residential	mortgage	loans	based on	 alleged	 breaches	 of	 representations,	 from	 government-sponsored enterprises,	 other	 third	 parties,	 trusts	 and	 other	 mortgage	 securitization vehicles,	 which	 have	 not	 been	 significant.	 During	 the	 years	 ended December	 2012	 and	 December	 2011,	 the	 firm	 repurchased	 loans	 with	 an unpaid	 principal	 balance	 of	 less	 than	 $10	 million.	 The	 loss	 related	 to	 the repurchase	of	these	loans	was	not	material	for	the	years	ended	December	2012 and	December	2011.

Ultimately,	 the	 firm's	 exposure	 to	 claims	 for	 repurchase	 of	 residential mortgage	loans	based	on	alleged	breaches	of	representations	will	depend	on	a number	of	factors	including	the	following:	(i)	the	extent	to	which	these	claims are	actually	made;	(ii)	the	extent	to	which	there	are	underlying	breaches	of representations	that	give	rise	to	valid	claims	for	repurchase;	(iii)	in	the	case	of loans	originated	by	others,	the	extent	to	which	the	firm	could	be	held	liable and,	if	it	is,	the	firm's	ability	to	pursue	and	collect	on	any	claims	against	the parties	who	made	representations	 to	 the	firm;	(iv)	macro-economic	factors, including	developments	in	the	residential	real	estate	market;	and	(v)	legal	and regulatory	developments.

Based	upon	the	large	number	of	defaults	in	residential	mortgages,	including those	sold	or	securitized	by	the	firm,	there	is	a	potential	for	increasing	claims for	repurchases.	However,	the	firm	is	not	in	a	position	to	make	a	meaningful estimate	of	that	exposure	at	this	time.

# Ÿ	Foreclosure	 and	 Other	 Mortgage	 Loan	 Servicing	 Practices	 and

Procedures.	The	firm	had	received	a	number	of	requests	for	information from	 regulators	 and	 other	 agencies,	 including	 state	 attorneys	 general	 and banking	 regulators,	 as	 part	 of	 an	 industry-wide	 focus	 on	 the	 practices	 of lenders	and	servicers	 in	connection	with	foreclosure	proceedings	and	other aspects	 of	 mortgage	 loan	 servicing	 practices	 and	 procedures.	The	 requests sought	information	about	the	foreclosure	and	servicing	protocols	and	activities of	 Litton,	 a	 residential	 mortgage	 servicing	 subsidiary	 sold	 by	 the	 firm	 to Ocwen	Financial	Corporation	(Ocwen)	in	the	third	quarter	of	2011.	The	firm is	 cooperating	 with	 the	 requests	 and	 these	 inquiries	 may	 result	 in	 the imposition	of	fines	or	other	regulatory	action.	In	the	third	quarter	of	2010, prior	to	the	firm's	sale	of	Litton,	Litton	had	temporarily	suspended	evictions and	foreclosure	and	real	estate	owned	sales	in	a	number	of	states,	including those	 with	 judicial	 foreclosure	 procedures.	 Litton	 resumed	 these	 activities beginning	in	the	fourth	quarter	of	2010.

In	 connection	 with	 the	 sale	 of	 Litton,	 the	 firm	 provided	 customary representations	 and	 warranties,	 and	 indemnities	 for	 breaches	 of	 these representations	and	warranties,	 to	Ocwen.	These	 indemnities	are	subject	 to various	limitations,	and	are	capped	at	approximately	$50	million.	The	firm	has not	yet	received	any	claims	relating	to	these	indemnities.	The	firm	also	agreed to	 provide	 specific	 indemnities	 to	 Ocwen	 related	 to	 claims	 made	 by	 third parties	with	respect	to	servicing	activities	during	the	period	that	Litton	was owned	by	the	firm	and	which	are	in	excess	of	the	related	reserves	accrued	for such	matters	by	Litton	at	the	time	of	the	sale.	These	indemnities	are	capped	at approximately	$125	million.	The	firm	has	recorded	a	reserve	for	the	portion	of these	 potential	 losses	 that	 it	 believes	 is	 probable	 and	 can	 be	 reasonably estimated.	As	of	December	2012,	the	firm	had	not	received	material	claims with	 respect	 to	 these	 indemnities	 and	 had	 not	 made	 material	 payments	 in connection	with	these	claims.

The	firm	further	agreed	to	provide	indemnities	to	Ocwen	not	subject	to	a	cap, which	 primarily	 relate	 to	 potential	 liabilities	 constituting	 fines	 or	 civil monetary	penalties	which	could	be	imposed	in	settlements	with	certain	terms with	U.S.	states'	attorneys	general	or	in	consent	orders	with	certain	terms	with the	 Federal	 Reserve,	 the	 Office	 of	 Thrift	 Supervision,	 the	 Office	 of	 the Comptroller	of	the	Currency,	the	FDIC	or	the	New	York	State	Department	of Financial	Services,	in	each	case	relating	to	Litton's

foreclosure	and	servicing	practices	while	it	was	owned	by	the	firm.	The	firm has	entered	into	a	settlement	in	principle	with	the	Board	of	Governors	of	the Federal	Reserve	System	(Federal	Reserve	Board)	relating	to	foreclosure	and servicing	matters	as	described	below.

Under	the	Litton	sale	agreement	the	firm	also	retained	liabilities	associated with	 claims	 related	 to	 Litton's	 failure	 to	 maintain	 lender-placed	 mortgage insurance,	obligations	to	repurchase	certain	loans	from	government-sponsored enterprises,	 subpoenas	 from	 one	 of	 Litton's	 regulators,	 and	 fines	 or	 civil penalties	imposed	by	the	Federal	Reserve	or	the	New	York	State	Department of	 Financial	 Services	 in	 connection	 with	 certain	 compliance	 matters. Management	 is	 unable	 to	 develop	 an	 estimate	 of	 the	 maximum	 potential amount	 of	 future	 payments	 under	 these	 indemnities	 because	 the	 firm	 has received	no	claims	under	these	indemnities	other	than	an	immaterial	amount with	 respect	 to	 government-sponsored	 enterprises.	 However,	 management does	not	believe,	based	on	currently	available	information,	that	any	payments under	 these	 indemnities	 will	 have	 a	 material	 adverse	 effect	 on	 the	 firm's financial	condition.

On	September	1,	2011,	Group	Inc.	and	GS	Bank	USA	entered	into	a	Consent Order	(the	Order)	with	the	Federal	Reserve	Board	relating	to	the	servicing	of residential	mortgage	loans.	The	terms	of	the	Order	were	substantially	similar and,	in	many	respects,	identical	to	the	orders	entered	into	with	the	Federal Reserve	Board	by	other	large	U.S.	financial	institutions.	The	Order	set	forth various	allegations	of	improper	conduct	in	servicing	by	Litton,	requires	that Group	Inc.	and	GS	Bank	USA	cease	and	desist	such	conduct,	and	required	that Group	 Inc.	 and	 GS	 Bank	 USA,	 and	 their	 boards	 of	 directors,	 take	 various affirmative	steps.	The	Order	required	(i)	Group	Inc.	and	GS	Bank	USA	 to engage	 a	 third-party	 consultant	 to	 conduct	 a	 review	 of	 certain	 foreclosure actions	or	proceedings	that	occurred	or	were	pending	between	January	1,	2009 and	December	31,	2010;	(ii)	the	adoption	of	policies	and	procedures	related	to management	of	third	parties	used	to	outsource	residential	mortgage	servicing, loss	mitigation	or	foreclosure;	(iii)	a	"validation	report"	from	an	independent third-party	consultant	regarding	compliance	with	the	Order	for	the	first	year; and	(iv)	submission	of	quarterly	progress	reports	as	to	compliance	with	the Order	by	the	boards	of	directors	(or	committees	thereof)	of	Group	Inc.	and GS	Bank	USA.

On	January	16,	2013,	Group	Inc.	and	GS	Bank	USA	entered	into	a	settlement in	 principle	 with	 the	 Federal	 Reserve	 Board	 relating	 to	 the	 servicing	 of residential	 mortgage	 loans	 and	 foreclosure	 processing.	 This	 settlement	 in principle,	 amends	 the	 Order	 which	 is	 described	 above,	 provides	 for	 the termination	of	the	independent	foreclosure	review	under	the	Order	and	calls for	Group	Inc.	and	GS	Bank	USA	collectively	to:	(i)	make	cash	payments	into a	settlement	fund	for	distribution	to	eligible	borrowers;	and	(ii)	provide	other assistance	for	foreclosure	prevention	and	 loss	mitigation	over	 the	next	 two years.	The	 other	 provisions	 of	 the	 Order	 will	 remain	 in	 effect.	The	 firm's reserves	 for	 legal	 and	 regulatory	 matters	 as	 of	 December	 2012	 include provisions	relating	to	this	settlement.

In	addition,	on	September	1,	2011,	GS	Bank	USA	entered	into	an	Agreement on	 Mortgage	 Servicing	 Practices	 with	 the	 New	 York	 State	 Department	 of Financial	Services,	Litton	and	Ocwen	relating	to	the	servicing	of	residential mortgage	 loans,	 and,	 in	 a	 related	 agreement	 with	 the	 New	 York	 State Department	of	Financial	Services,	Group	Inc.	agreed	to	forgive	25%	of	the unpaid	principal	balance	on	certain	delinquent	first	lien	residential	mortgage loans	owned	by	Group	Inc.	or	a	subsidiary,	totaling	approximately	$13	million in	principal	forgiveness.

The	firm	enters	into	various	derivatives	that	meet	the	definition	of	a	guarantee under	U.S.	GAAP,	including	written	equity	and	commodity	put	options,	written currency	contracts	and	interest	rate	caps,	floors	and	swaptions.	Disclosures	about derivatives	are	not	required	if	they	may	be	cash	settled	and	the	firm	has	no	basis to	conclude	it	is	probable	that	the	counterparties	held	the	underlying	instruments at	inception	of	the	contract.	The	firm	has	concluded	that	these	conditions	have been	 met	 for	 certain	 large,	 internationally	 active	 commercial	 and	 investment bank	counterparties	and	certain	other	counterparties.	Accordingly,	the	firm	has not	included	such	contracts	in	the	table	below.

The	firm,	in	its	capacity	as	an	agency	lender,	indemnifies	most	of	its	securities lending	customers	against	 losses	 incurred	 in	 the	event	 that	borrowers	do	not return	securities	and	the	collateral	held	is	insufficient	to	cover	the	market	value of	the	securities	borrowed.

In	the	ordinary	course	of	business,	the	firm	provides	other	financial	guarantees of	 the	 obligations	 of	 third	 parties	 (e.g.,	 standby	 letters	 of	 credit	 and	 other guarantees	 to	 enable	 clients	 to	 complete	 transactions	 and	 fund-related guarantees).	 These	 guarantees	 represent	 obligations	 to	 make	 payments	 to beneficiaries	 if	 the	 guaranteed	 party	 fails	 to	 fulfill	 its	 obligation	 under	 a contractual	arrangement	with	that	beneficiary.

The table	 below	 presents	 certain information	 about	 derivatives that	 meet the definition	of	a	guarantee	and	certain	other	guarantees.	The	maximum	payout	in the	table	below	is	based	on	the	notional	amount	of	the	contract	and	therefore does	not	represent	anticipated	losses.	See	Note	7	for	further	information	about credit	derivatives	that	meet	the	definition	of	a	guarantee	which	are	not	included below.

Because derivatives are accounted for at fair value, the carrying value is considered the best indication of payment/performance risk for individual contracts.	However,	the	carrying	values	below	exclude	the	effect	of	a	legal	right of	setoff	that	may	exist	under	an	enforceable	netting	agreement	and	the	effect	of netting	of	cash	collateral	posted	under	credit	support	agreements.

|  | Value	of |  | 2014- | 2016- | 2018- |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| in\tmillions | Net\tLiability | 2013 | 2015 | 2017 | Thereafter | Total |
| Derivatives\t^1 | $8,581 | \t$339,460 | \t$213,012 | \t$49,413 | $61,264 | $663,149 |
| Securities\tlending\tindemnifications\t^2 | — | 27,123 | — | — | — | 27,123 |
| Other\tfinancial\tguarantees\t^3 | 152 | 904 | 442 | 1,195 | 938 | 3,479 |

1.These	derivatives	are	risk	managed	together	with	derivatives	that	do	not	meet	the	definition	of	a	guarantee,	and	therefore	these	amounts	do	not	reflect	the	firm's	overall	risk	related	to	its	derivative activities.	As	of	December	2011,	the	carrying	value	of	the	net	liability	related	to	derivative	guarantees	was	$11.88	billion.

2.Collateral	held	by	the	lenders	in	connection	with	securities	lending	indemnifications	was	$27.89	billion	as	of	December	2012.	Because	the	contractual	nature	of	these	arrangements	requires	the	firm to	obtain	collateral	with	a	market	value	that	exceeds	the	value	of	the	securities	lent	to	the	borrower,	there	is	minimal	performance	risk	associated	with	these	guarantees.

3.Other	financial	guarantees	excludes	certain	commitments	to	issue	standby	letters	of	credit	that	are	included	in	"Commitments	to	extend	credit."	See	table	in	"Commitments"	above	for	a	summary	of the	firm's	commitments.	As	of	December	2011,	the	carrying	value	of	the	net	liability	related	to	other	financial	guarantees	was	$205	million.

Guarantees	 of	 Securities Issued	 by	 Trusts.	 The firm	 has	 established trusts,	including	Goldman	Sachs	Capital	I,	the	APEX	Trusts,	the	2012	Trusts, and	other	entities	for	the	limited	purpose	of	issuing	securities	to	third	parties, lending	the	proceeds	to	the	firm	and	entering	into	contractual	arrangements	with the	firm	and	third	parties	related	to	this	purpose.	The	firm	does	not	consolidate these	 entities.	 See	 Note 16 for	 further	 information	 about	 the	 transactions involving	Goldman	Sachs	Capital	I,	the	APEX	Trusts,	and	the	2012	Trusts.

The	firm	effectively	provides	for	 the	full	and	unconditional	guarantee	of	 the securities	issued	by	these	entities.	Timely	payment	by	the	firm	of	amounts	due	to these	 entities	 under	 the	 guarantee,	 borrowing,	 preferred	 stock	 and	 related contractual	 arrangements	 will	 be	 sufficient	 to	 cover	 payments	 due	 on	 the securities	issued	by	these	entities.

Management	believes	that	it	is	unlikely	that	any	circumstances	will	occur,	such as	nonperformance	on	the	part	of	paying	agents	or	other	service	providers,	that would	make	it	necessary	for	the	firm	to	make	payments	related	to	these	entities other	than	those	required	under	the	terms	of	the	guarantee,	borrowing,	preferred stock	 and	 related	 contractual	 arrangements	 and	 in	 connection	 with	 certain expenses	incurred	by	these	entities.

Indemnities and	 Guarantees	 of	 Service	 Providers.	In the	 ordinary course	 of	 business,	 the	 firm	 indemnifies	 and	 guarantees	 certain	 service providers,	 such	 as	 clearing	 and	 custody	 agents,	 trustees	 and	 administrators, against	specified	potential	losses	in	connection	with	their	acting	as	an	agent	of, or	providing	services	to,	the	firm	or	its	affiliates.

The	 firm	 may	 also	 be	 liable	 to	 some	 clients	 for	 losses	 caused	 by	 acts	 or omissions	of	third-party	service	providers,	including	sub-custodians	and	third- party	 brokers.	 In	 addition,	 the	 firm	 is	 a	 member	 of	 payment,	 clearing	 and settlement	networks	as	well	as	securities	exchanges	around	the	world	that	may require	the	firm	to	meet	the	obligations	of	such	networks	and	exchanges	in	the event	of	member	defaults.

In	connection	with	its	prime	brokerage	and	clearing	businesses,	the	firm	agrees to	clear	and	settle	on	behalf	of	its	clients	the	transactions	entered	into	by	them with	other	brokerage	firms.	The	firm's	obligations	in	respect	of	such	transactions are	secured	by	the	assets	in	the	client's	account	as	well	as	any	proceeds	received from	the	transactions	cleared	and	settled	by	the	firm	on	behalf	of	the	client.	In connection	with	joint	venture	investments,	the	firm	may	issue	loan	guarantees under	 which	 it	 may	 be	 liable	 in	 the	 event	 of	 fraud,	 misappropriation, environmental	liabilities	and	certain	other	matters	involving	the	borrower.

The	firm	is	unable	to	develop	an	estimate	of	the	maximum	payout	under	these guarantees	 and	 indemnifications.	 However,	 management	 believes	 that	 it	 is unlikely	 the	 firm	 will	 have	 to	 make	 any	 material	 payments	 under	 these arrangements,	 and	 no	 material	 liabilities	 related	 to	 these	 guarantees	 and indemnifications	 have	 been	 recognized	 in	 the	 consolidated	 statements	 of financial	condition	as	of	December	2012	and	December	2011.

Other	 Representations,	 Warranties	 and Indemnifications.	The firm provides	representations	and	warranties	to	counterparties	in	connection	with	a variety	of	commercial	transactions	and	occasionally	indemnifies	them	against potential	losses	caused	by	the	breach	of	those	representations	and	warranties. The	firm	may	also	provide	 indemnifications	protecting	against	changes	 in	or adverse	application	of	certain	U.S.	tax	laws	in	connection	with	ordinary-course transactions	such	as	securities	issuances,	borrowings	or	derivatives.

In	addition,	 the	firm	may	provide	 indemnifications	 to	some	counterparties	 to protect	them	in	the	event	additional	taxes	are	owed	or	payments	are	withheld, due	either	to	a	change	in	or	an	adverse	application	of	certain	non-U.S.	tax	laws.

These	indemnifications	generally	are	standard	contractual	terms	and	are	entered into	in	the	ordinary	course	of	business.	Generally,	there	are	no	stated	or	notional amounts	included	in	these	indemnifications,	and	the	contingencies	triggering	the obligation	to	indemnify	are	not	expected	to	occur.	The	firm	is	unable	to	develop an	 estimate	 of	 the	 maximum	 payout	 under	 these	 guarantees	 and indemnifications.	However,	management	believes	that	it	is	unlikely	the	firm	will have	to	make	any	material	payments	under	these	arrangements,	and	no	material liabilities	related	to	these	arrangements	have	been	recognized	in	the	consolidated statements	of	financial	condition	as	of	December	2012	and	December	2011.

Guarantees of Subsidiaries. Group	 Inc.	 fully	 and	 unconditionally guarantees	the	securities	issued	by	GS	Finance	Corp.,	a	wholly-owned	finance subsidiary	of	the	firm.

Group	Inc.	has	guaranteed	the	payment	obligations	of	Goldman,	Sachs	&	Co. (GS&Co.),	 GS	 Bank	 USA	 and	 Goldman	 Sachs	 Execution	 &	 Clearing,	 L.P. (GSEC),	subject	to	certain	exceptions.

In	November	2008,	the	firm	contributed	subsidiaries	into	GS	Bank	USA,	and Group	Inc.	agreed	to	guarantee	the	reimbursement	of	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.

In	 addition,	 Group	 Inc.	 guarantees	 many	 of	 the	 obligations	 of	 its	 other consolidated	 subsidiaries	 on	 a	 transaction-by-transaction	 basis,	 as	 negotiated with	counterparties.	Group	Inc.	is	unable	to	develop	an	estimate	of	the	maximum payout	 under	 its	 subsidiary	 guarantees;	 however,	 because	 these	 guaranteed obligations	are	also	obligations	of	consolidated	subsidiaries	included	in	the	table above,	Group	Inc.'s	liabilities	as	guarantor	are	not	separately	disclosed.

# Shareholders'	Equity

# Common	Equity

The	firm's	share	repurchase	program	is	intended	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	positions	(i.e.,	comparisons of	 the	firm's	desired	 level	and	composition	of	capital	 to	 its	actual	 level	and composition	of	capital),	but	which	may	also	be	influenced	by	general	market conditions	and	the	prevailing	price	and	trading	volumes	of	the	firm's	common stock.	Any	 repurchase	 of	 the	 firm's	 common	 stock	 requires	 approval	 by	 the Federal	Reserve	Board.

# Preferred	Equity

The	table	below	presents	perpetual	preferred	stock	issued	and	outstanding	as	of	December	2012.

|  | Shares | Shares | Shares |  | Value |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Series | Authorized | Issued | Outstanding | Dividend\tRate | (in\tmillions) |
| A | 50,000 | 30,000 | 29,999 | 3\tmonth\tLIBOR\t+\t0.75%, | $\t\t\t750 |
|  |  |  |  | with\tfloor\tof\t3.75%\tper\tannum |  |
| B | 50,000 | 32,000 | 32,000 | 6.20%\tper\tannum | 800 |
| C | 25,000 | 8,000 | 8,000 | 3\tmonth\tLIBOR\t+\t0.75%, | 200 |
|  |  |  |  | with\tfloor\tof\t4.00%\tper\tannum |  |
| D | 60,000 | 54,000 | 53,999 | 3\tmonth\tLIBOR\t+\t0.67%, | 1,350 |
|  |  |  |  | with\tfloor\tof\t4.00%\tper\tannum |  |
| E | 17,500 | 17,500 | 17,500 | 3\tmonth\tLIBOR\t+\t0.77%, | 1,750 |
|  |  |  |  | with\tfloor\tof\t4.00%\tper\tannum |  |
| F | 5,000 | 5,000 | 5,000 | 3\tmonth\tLIBOR\t+\t0.77%, | 500 |
|  |  |  |  | with\tfloor\tof\t4.00%\tper\tannum |  |
| I | 34,500 | 34,000 | 34,000 | 5.95%\tper\tannum | 850 |
|  | 242,000 | \t180,500 | 180,498 |  | $6,200 |

Each	 share	 of	 non-cumulative	 Series	 A	 Preferred	 Stock,	 Series	 B	 Preferred Stock,	 Series	 C	 Preferred	 Stock	 and	 Series	 D	 Preferred	 Stock	 issued	 and outstanding	has	a	par	value	of	$0.01,	has	a	liquidation	preference	of	$25,000,	is represented	by	1,000	depositary	shares	and	is	redeemable	at	the	firm's	option, subject	to	the	approval	of	the	Federal	Reserve	Board,	at	a	redemption	price	equal to	$25,000	plus	declared	and	unpaid	dividends.	On	October	24,	2012,	Group	Inc. issued	34,000	shares	of	non-cumulative	Series	I	Preferred	Stock,	par	value	$0.01 per	share.	Each	share	of	Series	I	Preferred	Stock	issued	and	outstanding	has	a liquidation	preference	of	$25,000,	is	represented	by	1,000	depositary	shares	and is	redeemable	at	the	firm's	option	beginning	November	10,	2017,	subject	to	the approval	of	the	Federal	Reserve	Board,	at	a	redemption	price	equal	to	$25,000 plus	accrued	and	unpaid	dividends.

In	2007,	the	Board	of	Directors	of	Group	Inc.	(Board)	authorized	17,500	shares of	Series	E	Preferred	Stock,	and	5,000	shares	of	Series	F	Preferred	Stock,	in connection	with	the	APEX	Trusts.	On	June	1,	2012,	Group	Inc.	issued	17,500 shares	of	Series	E	Preferred	Stock	to	Goldman	Sachs	Capital	II	pursuant	to	the stock	 purchase	 contracts	 held	 by	 Goldman	 Sachs	 Capital	 II.	 On September	4,	2012,	Group

Inc.	issued	5,000	shares	of	Series	F	Preferred	Stock	to	Goldman	Sachs	Capital III	pursuant	to	the	stock	purchase	contracts	held	by	Goldman	Sachs	Capital	III. Each	share	of	Series	E	and	Series	F	Preferred	Stock	issued	and	outstanding	has	a par	value	of	$0.01,	has	a	liquidation	preference	of	$100,000	and	is	redeemable	at the	option	of	the	firm	at	any	time	subject	to	approval	from	the	Federal	Reserve Board	and	to	certain	covenant	restrictions	governing	the	firm's	ability	to	redeem or	 purchase	 the	 preferred	 stock	 without	 issuing	 common	 stock	 or	 other instruments	 with	 equity-like	 characteristics,	 at	 a	 redemption	 price	 equal	 to $100,000 plus	 declared	 and	 unpaid	 dividends.	 See	 Note 16 for	 further information	about	the	APEX	Trusts.

All	series	of	preferred	stock	are	pari	passu	and	have	a	preference	over	the	firm's common	stock	on	liquidation.	Dividends	on	each	series	of	preferred	stock,	if declared,	are	payable	quarterly	in	arrears.	The	firm's	ability	to	declare	or	pay dividends	on,	or	purchase,	redeem	or	otherwise	acquire,	its	common	stock	is subject	to	certain	restrictions	in	the	event	that	the	firm	fails	to	pay	or	set	aside full	dividends	on	the	preferred	stock	for	the	latest	completed	dividend	period.

In	March	2011,	the	firm	provided	notice	to	Berkshire	Hathaway	Inc.	and	certain of	its	subsidiaries	(collectively,	Berkshire	Hathaway)	that	it	would	redeem	in	full the	 50,000	 shares	 of	 the	 firm's	 10%	 Cumulative	 Perpetual	 Preferred	 Stock, Series	G	(Series	G	Preferred	Stock)	held	by	Berkshire	Hathaway	for	the	stated redemption	price	of	$5.50	billion	($110,000	per	share),	plus	accrued	and	unpaid dividends.	 In	 connection	 with	 this	 notice,	 the	 firm	 recognized	 a	 preferred dividend	of	$1.64	billion	(calculated	as	the	difference	between	the	carrying	value and	 the	 redemption	 value	 of	 the	 preferred	 stock),	 which	 was	 recorded	 as	 a reduction	to	earnings	applicable	to	common	shareholders	for	the	first	quarter	of 2011.	 The	 redemption	 also	 resulted	 in	 the	 acceleration	 of $24	 million of preferred	dividends	related	to	the	period	from	April	1,	2011	to	the	redemption date,	which	was	included	in	the	firm's	results	during	the	three	months	ended March	2011.

The	 Series	 G	 Preferred	 Stock	 was	 redeemed	 on	 April	 18,	 2011.	 Berkshire Hathaway	 continues	 to	 hold	 a	 five-year	 warrant,	 issued	 in	 October	 2008,	 to purchase	up	 to	43.5	million	shares	of	common	stock	at	an	exercise	price	of $115.00	per	share.

The	table	below	presents	preferred	dividends	declared	on	preferred	stock.

1.Substantially	all	consists	of	net	unrealized	gains	on	securities	held	by	the	firm's	insurance	subsidiaries	as	of	both	December	2012	and	December	2011.

# Regulation	and	Capital	Adequacy

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,	the	firm	is subject	 to	 consolidated	 regulatory	 capital	 requirements	 that	 are	 computed	 in accordance	 with	 the	 Federal	 Reserve	 Board's	 risk-based	 capital	 requirements (which	 are	 based	 on	 the	 'Basel	 1'	 Capital	Accord	 of	 the	 Basel	 Committee). These	capital	requirements	are	expressed	as	capital	ratios	that	compare	measures of	 capital	 to	 risk-weighted	 assets	 (RWAs).	 The	 firm's	 U.S.	 bank	 depository institution	subsidiaries,	including	GS	Bank	USA,	are	subject	to	similar	capital requirements.

Under	 the	 Federal	 Reserve	 Board's	 capital	 adequacy	 requirements	 and	 the regulatory	framework	for	prompt	corrective	action	that	is	applicable	to	GS	Bank USA,	the	firm	and	its	U.S.	bank	depository	institution	subsidiaries	must	meet specific	 capital	 requirements	 that	 involve	 quantitative	 measures	 of	 assets, liabilities	 and	 certain	 off-balance-sheet	 items	 as	 calculated	 under	 regulatory reporting	 practices.	 The	 firm	 and	 its	 U.S.	 bank	 depository	 institution subsidiaries'	 capital	 amounts,	 as	 well	 as	 GS	 Bank	 USA's	 prompt	 corrective action	classification,	are	also	subject	to	qualitative	judgments	by	the	regulators about	components,	risk	weightings	and	other	factors.

Many	of	the	firm's	subsidiaries,	including	GS&Co.	and	the	firm's	other	broker- dealer	subsidiaries,	are	subject	to	separate	regulation	and	capital	requirements	as described	below.

# Group	Inc.

The	table	below	presents	information	regarding	Group	Inc.'s	regulatory	capital ratios.

|  | As	of	December |  |
| :--- | :--- | :--- |
| $\tin\tmillions | 2012 | 2011 |
| Tier\t1\tcapital | \t\t$\t\t66,977 | \t$\t\t63,262 |
| Tier\t2\tcapital | \t\t$\t\t13,429 | \t$\t\t13,881 |
| Total\tcapital | \t\t$\t\t80,406 | \t$\t\t77,143 |
| Risk-weighted\tassets | \t\t$399,928 | \t$457,027 |
| Tier\t1\tcapital\tratio | 16.7% | 13.8% |
| Total\tcapital\tratio | 20.1% | 16.9% |
| Tier\t1\tleverage\tratio | 7.3% | 7.0% |

RWAs	under	the	Federal	Reserve	Board's	risk-based	capital	requirements	are calculated	based	on	the	amount	of	market	risk	and	credit	risk.	RWAs	for	market risk	 are	 determined	 by	 reference	 to	 the	 firm's	 Value-at-Risk	 (VaR)	 model, supplemented	by	other	measures	to	capture	risks	not	reflected	in	the	firm's	VaR model.	 Credit	 risk	 for	 on-balance	 sheet	 assets	 is	 based	 on	 the	 balance	 sheet value.	 For	 off-balance	 sheet	 exposures,	 including	 OTC	 derivatives	 and commitments,	a	credit	equivalent	amount	 is	calculated	based	on	 the	notional amount	of	each	trade.	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).

Tier	 1	 leverage	 ratio	 is	 defined	 as	 Tier	 1	 capital	 under	 Basel	 1	 divided	 by average	 adjusted	 total	 assets	 (which	 includes	 adjustments	 for	 disallowed goodwill	and	intangible	assets,	and	the	carrying	value	of	equity	investments	in non-financial	companies	that	are	subject	to	deductions	from	Tier	1	capital).

# Regulatory	Reform

Changes	 to	 the	 market	 risk	 capital	 rules	 of	 the	 U.S.	 federal	 bank	 regulatory agencies	(the	Agencies)	became	effective	on	January	1,	2013.	These	changes require	the	addition	of	several	new	model-based	capital	requirements,	as	well	as an	increase	in	capital	requirements	for	securitization	positions,	and	are	designed to	implement	the	new	market	risk	framework	of	the	Basel	Committee,	as	well	as the	prohibition	on	the	use	of	external	credit	ratings,	as	required	by	the	Dodd- Frank	 Act.	 This	 revised	 market	 risk	 framework	 is	 a	 significant	 part	 of	 the regulatory	capital	changes	that	will	ultimately	be	included	in	the	firm's	capital ratios	under	the	guidelines	issued	by	the	Basel	Committee	in	December	2010 (Basel	3).	These	changes	resulted	in	increased	regulatory	capital	requirements for	market	risk,	and	will	be	reflected	 in	all	of	 the	firm's	Basel-based	capital ratios	for	periods	beginning	on	or	after	January	1,	2013.

The	 firm	 is	 currently	 working	 to	 implement	 the	 requirements	 set	 out	 in	 the Agencies'	 Risk-Based	 Capital	 Standards:	 Advanced	 Capital	 Adequacy Framework	—	Basel	2,	as	applicable	to	Group	Inc.	as	a	bank	holding	company and	 as	 an	 advanced	 approach	 banking	 organization	 (Basel 2). These requirements	 are	 based	 on	 the	 advanced	 approaches	 under	 the	 Revised Framework	 for	 the	 International	 Convergence	 of	 Capital	 Measurement	 and Capital	Standards	issued	by	the	Basel	Committee.	Basel	2,	among	other	things, revises	the	regulatory	capital	framework	for	credit	risk,	equity	investments,	and introduces	 a	 new	 operational	 risk	 capital	 requirement.	 The	 firm	 will	 adopt Basel	2	once	approved	to	do	so	by	regulators.	The	firm's	capital	adequacy	ratio will	also	be	impacted	by	the	further	changes	outlined	below	under	Basel	3	and provisions	of	the	Dodd-Frank	Act.

The	"Collins	Amendment"	of	the	Dodd-Frank	Act	requires	advanced	approach banking	organizations	to	continue,	upon	adoption	of	Basel	2,	to	calculate	risk- based	capital	ratios	under	both	Basel	2	and	Basel	1.	For	each	of	the	Tier	1	and Total	capital	ratios,	the	lower	of	the	Basel	1	and	Basel	2	ratios	calculated	will	be used	to	determine	whether	such	advanced	approach	banking	organizations	meet their	 minimum	 risk-based	 capital	 requirements.	 Furthermore,	 the	 June	 2012 proposals	 described	 below	 include	 provisions	 which,	 if	 enacted	 as	 proposed, would	modify	these	minimum	risk-based	capital	requirements.

In	 June	 2012,	 the	 Agencies	 proposed	 further	 modifications	 to	 their	 capital adequacy	regulations	to	address	aspects	of	both	the	Dodd-Frank	Act	and	Basel	3. If	enacted	as	proposed,	the	most	significant	changes	that	would	impact	the	firm include	(i)	revisions	to	the	definition	of	Tier	1	capital,	including	new	deductions from	Tier	1	capital,	(ii)	higher	minimum	capital	and	leverage	ratios,	(iii)	a	new minimum	ratio	of	Tier	1	common	equity	to	RWAs,	(iv)	new	capital	conservation and	counter-cyclical	capital	buffers,	(v)	an	additional	leverage	ratio	that	includes measures	of	off-balance	sheet	exposures,	(vi)	revisions	to	the	methodology	for calculating	 RWAs,	 particularly	 for	 credit	 risk	 capital	 requirements	 for derivatives	and	(vii)	a	new	"standardized	approach"	to	the	calculation	of	RWAs that	 would	 replace	 the	 Federal	 Reserve's	 current	 Basel	 1	 risk-based	 capital framework	in	2015,	including	for	purposes	of	calculating	the	requisite	capital floor	 under	 the	 Collins	 Amendment.	 In	 November	 2012,	 the	 Agencies announced	 that	 the	 proposed	 effective	 date	 of	 January 1, 2013	 for	 these modifications	would	be	deferred,	but	have	not	indicated	a	revised	effective	date. These	proposals	 incorporate	 the	phase-out	of	Tier	1	capital	 treatment	for	 the firm's	junior	subordinated	debt	issued	to	trusts;	such	capital	would	instead	be eligible	as	Tier	2	capital	under	the	proposals.	Under	the	Collins	Amendment, this	 phase-out	 was	 scheduled	 to	 begin	 on	 January 1, 2013.	 Due	 to	 the aforementioned	 deferral	 of	 the	 effective	 date	 of	 the	 proposed	 capital	 rules, however,	the	application	of	this	phase-out	remains	uncertain	at	this	time.

In	 November	 2011,	 the	 Basel	 Committee	 published	 its	 final	 provisions	 for assessing	the	global	systemic	importance	of	banking	institutions	and	the	range	of additional	 Tier 1 common	 equity	 that	 should	 be	 maintained	 by	 banking institutions	deemed	to	be	globally	systemically	important.	The	additional	capital for	these	institutions	would	initially	range	from	1%	to	2.5%	of	Tier	1	common equity	and	could	be	as	much	as	3.5%	for	a	banking	institution	that	increases	its systemic	 footprint	 (e.g.,	 by	 increasing	 total	 assets).	 In	 November	 2012,	 the Financial	Stability	Board	(established	at	the	direction	of	the	leaders	of	the	Group of	 20)	 indicated	 that	 the	 firm,	 based	 on	 its	 2011	 financial	 data,	 would	 be required	 to	 hold	 an	 additional	 1.5%	 of	Tier	 1	 common	 equity	 as	 a	 globally systemically	 important	 banking	 institution	 under	 the	 Basel	 Committee's methodology.	 The	 final	 determination	 of	 the	 amount	 of	 additional	 Tier 1 common	equity	that	the	firm	will	be	required	to	hold	will	be	based	on	the	firm's 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	 globally	 systemically	 important	 banking	 institutions	 will	 be required	to	meet	the	capital	surcharges	on	a	phased-in	basis	from	2016	through 2019.

In	 October	 2012,	 the	 Basel	 Committee	 published	 its	 final	 provisions	 for calculating	incremental	capital	requirements	for	domestic	systemically	important banking	 institutions.	 The	 provisions	 are	 complementary	 to	 the	 framework outlined	above	for	global	systemically	 important	banking	 institutions,	but	are more	 principles-based	 in	 order	 to	 provide	 an	 appropriate	 degree	 of	 national discretion.	The	impact	of	these	provisions	on	the	regulatory	capital	requirements of	GS	Bank	USA	and	the	firm's	other	subsidiaries,	including	Goldman	Sachs International	(GSI),	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	the	regulatory	capital	requirements,	including	a	"Fundamental Review	 of	 the	 Trading	 Book."	 and	 "Revisions	 to	 the	 Basel	 Securitization Framework."	The	full	 impact	of	 these	developments	on	 the	firm	will	not	be known	with	certainty	until	after	any	resulting	rules	are	finalized.

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	U.S.	Commodity	Futures	Trading	Commission	(CFTC) rules,	including	GS&Co.,	GS	Bank	USA,	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	yet	been finalized	by	the	CFTC	and	SEC.

The	 interaction	 among	 the	 Dodd-Frank	 Act,	 other	 reform	 initiatives contemplated	by	the	Agencies,	the	Basel	Committee's	proposed	and	announced changes	 and	 other	 proposed	 or	 announced	 changes	 from	 other	 governmental entities	 and	 regulators	 (including	 the	 European	 Union	 (EU)	 and	 the	 U.K.'s Financial	Services	Authority	(FSA))	adds	further	uncertainty	to	the	firm's	future capital	and	liquidity	requirements	and	those	of	the	firm's	subsidiaries.

# Bank	Subsidiaries

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	 Consumer	 Financial	 Protection	 Bureau,	 and	 is	 subject	 to	 minimum capital	requirements	(described	below)	that	are	calculated	in	a	manner	similar	to those	applicable	to	bank	holding	companies.	GS	Bank	USA	computes	its	capital ratios	in	accordance	with	the	regulatory	capital	requirements	currently	applicable to	 state	 member	 banks,	 which	 are	 based	 on	 Basel	 1	 as	 implemented	 by	 the Federal	Reserve	Board,	for	purposes	of	assessing	the	adequacy	of	its	capital. Under	the	regulatory	framework	for	prompt	corrective	action	that	is	applicable	to GS	 Bank	 USA,	 in	 order	 to	 be	 considered	 a	 "well-capitalized"	 depository institution,	GS	Bank	USA	must	maintain	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.	Accordingly,	 for	 a period	of	time,	GS	Bank	USA	is	expected	to	maintain	a	Tier	1	capital	ratio	of	at least	8%,	a	total	capital	ratio	of	at	least	11%	and	a	Tier	1	leverage	ratio	of	at least	6%.	As	noted	in	the	table	below,	GS	Bank	USA	was	in	compliance	with these	minimum	capital	requirements	as	of	December	2012	and	December	2011.

The	 table	 below	 presents	 information	 regarding	 GS	 Bank	 USA's	 regulatory capital	ratios	under	Basel	1	as	implemented	by	the	Federal	Reserve	Board.

|  | As	of	December |  |
| :--- | :--- | :--- |
| $\tin\tmillions | 2012 | 2011 |
| Tier\t1\tcapital | \t\t$\t\t20,704 | \t$\t\t19,251 |
| Tier\t2\tcapital | \t\t$\t\t\t\t\t\t\t\t\t39 | \t$\t\t\t\t\t\t\t\t\t\t\t6 |
| Total\tcapital | \t\t$\t\t20,743 | \t$\t\t19,257 |
| Risk-weighted\tassets | \t\t$109,669 | \t$112,824 |
| Tier\t1\tcapital\tratio | 18.9% | 17.1% |
| Total\tcapital\tratio | 18.9% | 17.1% |
| Tier\t1\tleverage\tratio | 17.6% | 18.5% |

Effective	January	1,	2013,	GS	Bank	USA	implemented	the	revised	market	risk regulatory	 framework	 outlined	 above.	 These	 changes	 resulted	 in	 increased regulatory	capital	requirements	for	market	risk,	and	will	be	reflected	in	all	of	GS Bank	 USA's	 Basel-based	 capital	 ratios	 for	 periods	 beginning	 on	 or	 after January	1,	2013.

GS	Bank	USA	is	also	currently	working	to	implement	the	Basel	2	framework,	as implemented	by	the	Federal	Reserve	Board.	GS	Bank	USA	will	adopt	Basel	2 once	approved	to	do	so	by	regulators.

In	 addition,	 the	 capital	 requirements	 for	 GS	 Bank	 USA	 are	 expected	 to	 be impacted	 by	 the	 June	 2012	 proposed	 modifications	 to	 the	Agencies'	 capital adequacy	regulations	outlined	above,	including	the	requirements	of	a	floor	to	the advanced	risk-based	capital	ratios.	If	enacted	as	proposed,	these	proposals	would also	 change	 the	 regulatory	 framework	 for	 prompt	 corrective	 action	 that	 is applicable	 to	GS	Bank	USA	by,	among	other	 things,	 introducing	a	common equity	Tier	 1	 ratio	 requirement,	 increasing	 the	 minimum	Tier	 1	 capital	 ratio requirement	and	introducing	a	supplementary	leverage	ratio	as	a	component	of the	prompt	corrective	action	analysis.	GS	Bank	USA	will	also	be	impacted	by aspects	of	the	Dodd-Frank	Act,	including	new	stress	tests.

The	deposits	of	GS	Bank	USA	are	insured	by	the	FDIC	to	the	extent	provided	by law.	The	Federal	Reserve	Board	requires	depository	institutions	to	maintain	cash reserves	 with	 a	 Federal	 Reserve	 Bank.	 The	 amount	 deposited	 by	 the	 firm's depository	 institution	 held	 at	 the	 Federal	 Reserve	 Bank	 was	 approximately $58.67	billion	and	$40.06	billion	as	of	December	2012	and	December	2011, respectively,	which	exceeded	required	reserve	amounts	by	$58.59	billion	and $39.51	billion	as	of	December	2012	and	December	2011,	respectively.

Transactions	between	GS	Bank	USA	and	its	subsidiaries	and	Group	Inc.	and	its subsidiaries	and	affiliates	(other	than,	generally,	subsidiaries	of	GS	Bank	USA) are	regulated	by	the	Federal	Reserve	Board.	These	regulations	generally	limit	the types	and	amounts	of	transactions	(including	credit	extensions	from	GS	Bank USA)	 that	 may	 take	 place	 and	 generally	 require	 those	 transactions	 to	 be	 on market	terms	or	better	to	GS	Bank	USA.

The	firm's	principal	non-U.S.	bank	subsidiaries	include	GSIB,	a	wholly-owned credit	institution,	regulated	by	the	FSA,	and	GS	Bank	Europe,	a	wholly-owned credit	 institution,	 regulated	 by	 the	 Central	 Bank	 of	 Ireland,	 which	 are	 both subject	 to	 minimum	 capital	 requirements.	 As	 of	 December	 2012	 and December	2011,	GSIB	and	GS	Bank	Europe	were	both	in	compliance	with	all regulatory	 capital	 requirements.	 On	 January 18, 2013,	 GS	 Bank	 Europe surrendered	its	banking	license	to	the	Central	Bank	of	Ireland	after	transferring its	deposits	to	GSIB.

# Broker-Dealer	Subsidiaries

The	 firm's	 U.S.	 regulated	 broker-dealer	 subsidiaries	 include	 GS&Co.	 and GSEC.	 GS&Co.	 and	 GSEC	 are	 registered	 U.S.	 broker-dealers	 and	 futures commission	 merchants,	 and	 are	 subject	 to	 regulatory	 capital	 requirements, including	those	imposed	by	the	SEC,	the	CFTC,	Chicago	Mercantile	Exchange, the	 Financial	 Industry	 Regulatory	Authority,	 Inc.	 (FINRA)	 and	 the	 National Futures	Association.	Rule	15c3-1	of	the	SEC	and	Rule	1.17	of	the	CFTC	specify uniform	minimum	net	capital	requirements,	as	defined,	for	their	registrants,	and also	effectively	require	that	a	significant	part	of	the	registrants'	assets	be	kept	in relatively	 liquid	 form.	 GS&Co.	 and	 GSEC	 have	 elected	 to	 compute	 their minimum	capital	requirements	in	accordance	with	the	"Alternative	Net	Capital Requirement"	as	permitted	by	Rule	15c3-1.

In	addition	to	its	alternative	minimum	net	capital	requirements,	GS&Co.	is	also required	to	hold	tentative	net	capital	in	excess	of	$1	billion	and	net	capital	in excess	of	$500	million	in	accordance	with	the	market	and	credit	risk	standards	of Appendix	E	of	Rule	15c3-1.	GS&Co.	is	also	required	to	notify	the	SEC	in	the event	that	its	tentative	net	capital	is	less	than	$5	billion.	As	of	December	2012 and	December	2011,	GS&Co.	had	tentative	net	capital	and	net	capital	in	excess of	both	the	minimum	and	the	notification	requirements.

# Insurance	Subsidiaries

The	 firm	 has	 U.S.	 insurance	 subsidiaries	 that	 are	 subject	 to	 state	 insurance regulation	and	oversight	in	the	states	in	which	they	are	domiciled	and	in	the other	 states	 in	 which	 they	 are	 licensed.	 In	 addition,	 certain	 of	 the	 firm's insurance	subsidiaries	outside	of	the	U.S.	are	regulated	by	the	FSA	and	certain are	 regulated	 by	 the	 Bermuda	 Monetary	 Authority.	 The	 firm's	 insurance subsidiaries	were	in	compliance	with	all	regulatory	capital	requirements	as	of December	2012	and	December	2011.

# Other	Non-U.S.	Regulated	Subsidiaries

The	firm's	principal	non-U.S.	regulated	subsidiaries	include	GSI	and	Goldman Sachs	Japan	Co.,	Ltd.	(GSJCL).	GSI,	the	firm's	regulated	U.K.	broker-dealer,	is subject	 to	 the	 capital	 requirements	 imposed	 by	 the	 FSA.	 GSJCL,	 the	 firm's regulated	Japanese	broker-dealer,	is	subject	to	the	capital	requirements	imposed by	 Japan's	 Financial	 Services	 Agency.	 As	 of	 December	 2012	 and December	2011,	GSI	and	GSJCL	were	in	compliance	with	their	local	capital adequacy	requirements.	Certain	other	non-U.S.	subsidiaries	of	the	firm	are	also subject	 to	 capital	 adequacy	 requirements	 promulgated	 by	 authorities	 of	 the countries	 in	which	 they	operate.	As	of	December	2012	and	December	2011, these	 subsidiaries	 were	 in	 compliance	 with	 their	 local	 capital	 adequacy requirements.

# Restrictions	on	Payments

The	regulatory	requirements	referred	 to	above	restrict	Group	Inc.'s	ability	 to withdraw	 capital	 from	 its	 regulated	 subsidiaries.	As	 of	 December	 2012	 and December	 2011,	 Group	 Inc.	 was	 required	 to	 maintain	 approximately $31.01	billion	and	$25.53	billion,	respectively,	of	minimum	equity	capital	 in these	regulated	subsidiaries.	This	minimum	equity	capital	requirement	includes certain	 restrictions	 imposed	 by	 federal	 and	 state	 laws	 as	 to	 the	 payment	 of dividends	to	Group	Inc.	by	its	regulated	subsidiaries.	In	addition	to	limitations on	 the	payment	of	dividends	 imposed	by	federal	and	state	 laws,	 the	Federal Reserve	 Board,	 the	 FDIC	 and	 the	 New	York	 State	 Department	 of	 Financial Services	have	authority	to	prohibit	or	to	limit	the	payment	of	dividends	by	the banking	 organizations	 they	 supervise	 (including	 GS	 Bank	 USA)	 if,	 in	 the relevant	regulator's	opinion,	payment	of	a	dividend	would	constitute	an	unsafe or	 unsound	 practice	 in	 the	 light	 of	 the	 financial	 condition	 of	 the	 banking organization.

# Earnings	Per	Common	Share

Basic	earnings	per	common	share	(EPS)	is	calculated	by	dividing	net	earnings applicable	to	common	shareholders	by	the	weighted	average	number	of	common shares	 outstanding.	 Common	 shares	 outstanding	 includes	 common	 stock	 and RSUs	for	which	no	future	service	is	required	as	a	condition	to	the	delivery	of	the underlying	common	stock.	Diluted	EPS	includes	the	determinants	of

basic	 EPS	 and,	 in	 addition,	 reflects	 the	 dilutive	 effect	 of	 the	 common	 stock deliverable	for	stock	warrants	and	options	and	for	RSUs	for	which	future	service is	required	as	a	condition	to	the	delivery	of	the	underlying	common	stock. The	table	below	presents	the	computations	of	basic	and	diluted	EPS.

|  | Year	Ended	December | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions,\texcept\tper\tshare\tamounts | 2012 | 2011 | 2010 |
| Numerator\tfor\tbasic\tand\tdiluted\tEPS\t—\tnet\tearnings\tapplicable\tto\tcommon\tshareholders | \t$7,292 | \t$2,510\t\t\t\t\t\t\t$7,713 | \t$2,510\t\t\t\t\t\t\t$7,713 |
| Denominator\tfor\tbasic\tEPS\t—\tweighted\taverage\tnumber\tof\tcommon\tshares | 496.2 | 524.6 | 542.0 |
| Effect\tof\tdilutive\tsecurities:\nRSUs | 11.3 | 14.6 | 15.0 |
| Stock\toptions\tand\twarrants | 8.6 | 17.7 | 28.3 |
| Dilutive\tpotential\tcommon\tshares | 19.9 | 32.3 | 43.3 |
| Denominator\tfor\tdiluted\tEPS\t—\tweighted\taverage\tnumber\tof\tcommon\tshares\tand\tdilutive |  |  |  |
| potential\tcommon\tshares | 516.1 | 556.9 | 585.3 |
| Basic\tEPS | \t$14.63 | \t$\t\t4.71\t\t\t\t\t\t\t$14.15 | \t$\t\t4.71\t\t\t\t\t\t\t$14.15 |
| Diluted\tEPS | 14.13 | 4.51 | 13.18 |

In	 the	 table	 above,	 unvested	 share-based	 payment	 awards	 that	 have	 non- forfeitable	rights	to	dividends	or	dividend	equivalents	are	treated	as	a	separate class	of	securities	in	calculating	EPS.	The	impact	of	applying	this	methodology was	a	reduction	in	basic	EPS	of	$0.07	for	both	the	years

The	diluted	EPS	computations	in	the	table	above	do	not	include	the	following:

# Transactions	with	Affiliated	Funds

The	firm	has	formed	numerous	nonconsolidated	 investment	funds	with	 third- party	investors.	As	the	firm	generally	acts	as	the	investment	manager	for	these funds,	it	is	entitled	to	receive	management	fees	and,	in	certain	cases,	advisory fees	or	incentive	fees	from	these	funds.	Additionally,	the	firm	invests	alongside the	third-party	investors	in	certain	funds.

The	tables	below	present	fees	earned	from	affiliated	funds,	fees	receivable	from affiliated	 funds	 and	 the	 aggregate	 carrying	 value	 of	 the	 firm's	 interests	 in affiliated	funds.

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Fees\treceivable\tfrom\tfunds | \t\t$\t\t\t\t\t704 | \t $\t\t\t\t\t721 |
| Aggregate\tcarrying\tvalue\tof\tinterests\tin\tfunds | 14,725 | 14,960 |

As	of	December	2012	and	December	2011,	the	firm	had	outstanding	loans	and guarantees	to	certain	of	its	funds	of	$582	million	and	$289	million,	respectively, which	are	collateralized	by	certain	fund	assets.	These	amounts	relate	primarily	to certain	real	estate	funds	for	which	the	firm	voluntarily	provided	financial	support to	alleviate	liquidity	constraints	during	the	financial	crisis	and,	more	recently,	to enable	 them	 to	 fund	 investment	 opportunities.	 As	 of	 December	 2012	 and December	2011,	the	firm	had	no	outstanding	commitments	to	extend	credit	to these	funds.

The	Volcker	Rule,	as	currently	drafted,	would	restrict	the	firm	from	providing additional	voluntary	financial	support	to	these	funds	after	July	2014	(subject	to extension	by	the	Federal	Reserve	Board).	As	a	general	matter,	in	the	ordinary course	 of	 business,	 the	 firm	 does	 not	 expect	 to	 provide	 additional	 voluntary financial	 support	 to	 these	 funds;	 however,	 in	 the	 event	 that	 such	 support	 is provided,	 the	amount	of	any	such	support	 is	not	expected	 to	be	material.	In addition,	in	the	ordinary	course	of	business,	the	firm	may	also	engage	in	other activities	 with	 these	 funds,	 including,	 among	 others,	 securities	 lending,	 trade execution,	market	making,	custody,	and	acquisition	and	bridge	financing.	See Note	18	for	the	firm's	investment	commitments	related	to	these	funds.

# Interest	Income	and	Interest	Expense

Interest income is	recorded	on	an	accrual	basis	based	on	contractual interest rates.	The	table	below	presents	the sources	of	interest	income	and	interest	expense.

|  | Year	Ended	December | Year	Ended	December | Year	Ended	December |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Interest\tincome |  |  |  |
| Deposits\twith\tbanks | \t$\t\t\t\t\t156 | \t$\t\t\t\t\t125 | \t$\t\t\t\t\t\t\t86 |
| Securities\tborrowed,\tsecurities\tpurchased\tunder\tagreements\tto\tresell\tand\tfederal\tfunds\tsold\t^1 | (77) | 666 | 540 |
| Financial\tinstruments\towned,\tat\tfair\tvalue | 9,817 | 10,718 | 10,346 |
| Other\tinterest\t^2 | 1,485 | 1,665 | 1,337 |
| Total\tinterest\tincome | 11,381 | 13,174 | 12,309 |
| Interest\texpense |  |  |  |
| Deposits | 399 | 280 | 304 |
| Securities\tloaned\tand\tsecurities\tsold\tunder\tagreements\tto\trepurchase | 822 | 905 | 708 |
| Financial\tinstruments\tsold,\tbut\tnot\tyet\tpurchased,\tat\tfair\tvalue | 2,438 | 2,464 | 1,859 |
| Short-term\tborrowings\t^3 | 581 | 526 | 453 |
| Long-term\tborrowings\t^3 | 3,736 | 3,439 | 3,155 |
| Other\tinterest\t^4 | (475) | 368 | 327 |
| Total\tinterest\texpense | 7,501 | 7,982 | 6,806 |
| Net\tinterest\tincome | \t$\t\t3,880 | \t$\t\t5,192 | \t$\t\t5,503 |
| 1.Includes\trebates\tpaid\tand\tinterest\tincome\ton\tsecurities\tborrowed. |  |  |  |
| 3.Includes\tinterest\ton\tunsecured\tborrowings\tand\tother\tsecured\tfinancings. |  |  |  |
|  | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | 201 |

1.Includes	rebates	paid	and	interest	income	on	securities	borrowed.

2.Includes	interest	income	on	customer	debit	balances	and	other	interest-earning	assets.

3.Includes	interest	on	unsecured	borrowings	and	other	secured	financings.

4.Includes	rebates	received	on	other	interest-bearing	liabilities	and	interest	expense	on	customer	credit	balances.

# Income	Taxes

# Provision	for	Income	Taxes

Income	taxes	are	provided	for	using	the	asset	and	liability	method	under	which deferred tax assets and liabilities are recognized for temporary	 differences between	the	financial	reporting	and	tax	bases	of	assets	and	liabilities.	The	firm reports	interest	expense	related	to	income	tax	matters	in	"Provision	for	taxes" and	income	tax	penalties	in	"Other	expenses."

The	tables	below	present	the	components	of	the	provision/(benefit)	for	taxes	and a reconciliation	 of the	 U.S. federal statutory income tax rate to the firm's effective	income	tax	rate.

|  |  | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Current\ttaxes |  |  |  |
| U.S.\tfederal | \t$3,013 | \t$\t\t\t405 | \t$1,791 |
| State\tand\tlocal | 628 | 392 | 325 |
| Non-U.S. | 447 | 204 | 1,083 |
| Total\tcurrent\ttax\texpense | 4,088 | 1,001 | 3,199 |
| Deferred\ttaxes |  |  |  |
| U.S.\tfederal | (643) | 683 | 1,516 |
| State\tand\tlocal | 38 | 24 | 162 |
| Non-U.S. | 249 | 19 | (339) |
| Total\tdeferred\ttax\t(benefit)/expense | (356) | 726 | 1,339 |
| Provision\tfor\ttaxes | \t$3,732 | \t$1,727 | \t$4,538 |

|  | Year	Ended	December | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
|  | 2012 | 2011 | 2010 |
| U.S.\tfederal\tstatutory\tincome\ttax\trate | 35.0% | 35.0% | 35.0% |
|  | 3.8 | 4.4 | 2.5 |
| Tax\tcredits | (1.0) | (1.6) | (0.7) |
| Non-U.S.\toperations | (4.8) | (6.7) | (2.3) |
| Tax-exempt\tincome,\tincluding\tdividends | (0.5) | (2.4) | (1.0) |
| Other | 0.8 | (0.7) | 1.7^\t1 |
| Effective\tincome\ttax\trate | 33.3% | 28.0% | 35.2% |

1.Primarily	includes	the	effect	of	the	SEC	settlement	of	$550	million,	substantially	all	of	which	is	non-deductible.

# Deferred	Income	Taxes

Deferred	 income	 taxes	 reflect	 the	 net	 tax	 effects	 of	 temporary	 differences between	 the	 financial	 reporting	 and	 tax	 bases	 of	 assets	 and	 liabilities.	These temporary	differences	result	in	taxable	or	deductible	amounts	in	future	years	and are	 measured	 using	 the	 tax	 rates	 and	 laws	 that	 will	 be	 in	 effect	 when	 such differences	 are	 expected	 to	 reverse.	 Valuation	 allowances	 are	 established	 to reduce

deferred	tax	assets	to	the	amount	that	more	likely	than	not	will	be	realized.	Tax assets	and	liabilities	are	presented	as	a	component	of	"Other	assets"	and	"Other liabilities	and	accrued	expenses,"	respectively.

The	table	below	presents	the	significant	components	of	deferred	tax	assets	and liabilities.

|  | As	of	December | As	of	December |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Deferred\ttax\tassets |  |  |
| Compensation\tand\tbenefits | \t$2,447 | \t$3,126 |
| Unrealized\tlosses | 1,477 | 849 |
| ASC\t740\tasset\trelated\tto\tunrecognized\ttax\tbenefits | 685 | 569 |
| Non-U.S.\toperations | 965 | 662 |
| Foreign\ttax\tcredits | — | 12 |
| Net\toperating\tlosses | 222 | 213 |
| Occupancy-related | 119 | 110 |
| Other\tcomprehensive\tincome-related | 114 | 168 |
| Other,\tnet | 435 | 581 |
|  | 6,464 | 6,290 |
| Valuation\tallowance\t^1 | (168) | (65) |
| Total\tdeferred\ttax\tassets\t^2 | \t$6,296 | \t$6,225 |
| Depreciation\tand\tamortization | 1,230 | 1,959 |
| Other\tcomprehensive\tincome-related | 85 | 36 |
| Total\tdeferred\ttax\tliabilities\t^2 | \t$1,315 | \t$1,995 |

1.Relates	primarily	to	the	ability	to	utilize	losses	in	various	tax	jurisdictions.

2.Before	netting	within	tax	jurisdictions.

The	firm	has	recorded	deferred	tax	assets	of	$222	million	and	$213	million	as	of December	 2012	 and	 December	 2011,	 respectively,	 in	 connection	 with	 U.S. federal,	state	and	local	and	foreign	net	operating	loss	carryforwards.	The	firm also	 recorded	 a	 valuation	 allowance	 of	 $60	 million	 and	 $59	 million	 as	 of December	2012	and	December	2011,	respectively,	related	to	these	net	operating loss	 carryforwards.	As	 of	 December	 2012,	 the	 U.S.	 federal	 and	 foreign	 net operating	loss	carryforwards	were	$39	million	and	$640	million,	respectively.	If not	utilized,	the	U.S.	federal	net	operating	loss	carryforward	will	begin	to	expire in	2026.	The	foreign	net	operating	loss	carryforwards	can	be	carried	forward indefinitely.	State	and	local	net	operating	loss	carryforwards	of	$1.19	billion	will begin	 to	 expire	 in	 2013.	 If	 these	 carryforwards	 expire,	 they	 will	 not	 have	 a material	impact	on	the	firm's	results	of	operations.	The	firm

had	foreign	tax	credit	carryforwards	of	$0	and	$12	million	as	of	December	2012 and	 December	 2011,	 respectively.	 The	 firm	 recorded	 a	 related	 net	 deferred income	tax	asset	of	$0	and	$6	million	as	of	December	2012	and	December	2011, respectively.

The	 firm	 had	 capital	 loss	 carryforwards	 of $0 and $6 million	 as	 of December	2012	and	December	2011,	respectively.	The	firm	recorded	a	related net	deferred	income	tax	asset	of	$0	and	$2	million	as	of	December	2012	and December	2011,	respectively.

The	valuation	allowance	increased	by	$103	million	and	$15	million	during	2012 and	2011,	respectively.	The	increase	in	2012	was	primarily	due	to	the	acquisition of	deferred	tax	assets	considered	more	likely	than	not	to	be	unrealizable.	The increase	in	2011	was	due	to	losses	considered	more	likely	than	not	to	expire unused.

The	firm	permanently	reinvests	eligible	earnings	of	certain	foreign	subsidiaries and,	accordingly,	does	not	accrue	any	U.S.	income	taxes	that	would	arise	if	such earnings	were	repatriated.	As	of	December	2012	and	December	2011,	this	policy resulted	 in	 an	 unrecognized	 net	 deferred	 tax	 liability	 of	 $3.75	 billion	 and $3.32	billion,	respectively,	attributable	to	reinvested	earnings	of	$21.69	billion and	$20.63	billion,	respectively.

# Unrecognized	Tax	Benefits

The	firm	recognizes	tax	positions	in	the	financial	statements	only	when	it	is	more likely	than	not	that	the	position	will	be	sustained	on	examination	by	the	relevant taxing	authority	based	on	the	technical	merits	of	the	position.	A	position	that meets	this	standard	is	measured	at	the	largest	amount	of	benefit	that	will	more likely	than	not	be	realized	on	settlement.	A	liability	is	established	for	differences between	 positions	 taken	 in	 a	 tax	 return	 and	 amounts	 recognized	 in	 the financial	statements.

As	 of	 December	 2012	 and	 December	 2011, the	 accrued liability	 for interest expense	related	to	income	tax	matters	and	income	tax	penalties	was	$374	million and	$233	million,	respectively.	The	firm	recognized	$95	million,	$21	million and	 $28	 million	 of interest and income tax penalties for the years ended December 2012,	 December 2011 and	 December 2010, respectively. It is reasonably	possible that	unrecognized tax	benefits	could	change	significantly during	the	twelve	months	subsequent	to	December	2012	due	to	potential	audit settlements, however, at this time it is not possible to estimate any potential	change.

The table	 below	 presents the changes in the liability for	 unrecognized tax benefits.	This	liability	is	included	in	"Other	liabilities	and	accrued	expenses." See	Note	17	for	further	information.

|  | As	of	December | As	of	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Balance,\tbeginning\tof\tyear | \t$1,887 | \t$2,081 | \t$1,925 |
| Increases\tbased\ton\ttax\tpositions\trelated\tto\tthe\tcurrent\tyear | 190 | 171 | 171 |
| Increases\tbased\ton\ttax\tpositions\trelated\tto\tprior\tyears | 336 | 278 | 162 |
| Decreases\trelated\tto\ttax\tpositions\tof\tprior\tyears | (109) | (41) | (104) |
| Decreases\trelated\tto\tsettlements | (35) | (638) | (128) |
| Acquisitions/(dispositions) | (47) | 47 | 56 |
| Exchange\trate\tfluctuations | 15 | (11) | (1) |
| Balance,\tend\tof\tyear | \t$2,237 | \t$1,887 | \t$2,081 |
| Related\tdeferred\tincome\ttax\tasset\t^1 | 685 | 569 | 972 |
| Net\tunrecognized\ttax\tbenefit\t^2 | \t$1,552 | \t$1,318 | \t$1,109 |

1.Included	in	"Other	assets."	See	Note	12.

2.If	recognized,	the	net	tax	benefit	would	reduce	the	firm's	effective	income	tax	rate.

# Regulatory	Tax	Examinations

The	firm	is	subject	to	examination	by	the	U.S.	Internal	Revenue	Service	(IRS) and	 other	 taxing	 authorities	 in	 jurisdictions	 where	 the	 firm	 has	 significant business	operations,	such	as	the	United	Kingdom,	Japan,	Hong	Kong,	Korea	and various	states,	such	as	New	York.	The	 tax	years	under	examination	vary	by jurisdiction.	The	firm	believes	that	during	2013,	certain	audits	have	a	reasonable possibility	of	being	completed.	The	firm	does	not	expect	completion	of	these audits	to	have	a	material	impact	on	the	firm's	financial	condition	but	it	may	be material	to	operating	results	for	a	particular	period,	depending,	in	part,	on	the operating	results	for	that	period.

The	table	below	presents	the	earliest	tax	years	that	remain	subject	to	examination by	major	jurisdiction.

1.IRS	examination	of	fiscal	2008	through	calendar	2010	began	during	2011.	IRS	examination of	fiscal	2005,	2006	and	2007	began	during	2008.	IRS	examination	of	fiscal	2003	and	2004 has	been	completed,	but	the	liabilities	for	those	years	are	not	yet	final.	The	firm	anticipates that	the	audits	of	fiscal	2005	through	calendar	2010	should	be	completed	during	2013,	and the	audits	of	2011	through	2012	should	begin	in	2013.

3.Japan	National	Tax	Agency	examination	of	fiscal	2005	through	2009	began	in	2010.	The examinations	have	been	completed,	but	the	liabilities	for	2008	and	2009	are	not	yet	final.

All	years	subsequent	to	the	above	remain	open	to	examination	by	the	taxing authorities.	The	firm	believes	that	the	liability	for	unrecognized	tax	benefits	it has	established	is	adequate	in	relation	to	the	potential	for	additional	assessments.

In	January	2013,	the	firm	was	accepted	into	the	Compliance	Assurance	Process program	by	the	IRS.	This	program	will	allow	the	firm	to	work	with	the	IRS	to identify	 and	 resolve	 potential	 U.S.	 federal	 tax	 issues	 before	 the	 filing	 of	 tax returns.	The	2013	tax	year	will	be	the	first	year	examined	under	the	program.

# Business	Segments

The	 firm	 reports	 its	 activities	 in	 the	 following	 four	 business	 segments: Investment	 Banking,	 Institutional	 Client	 Services,	 Investing	 &	 Lending	 and Investment	Management.

In	reporting	segments,	certain	of	the	firm's	business	lines	have	been	aggregated where	they	have	similar	economic	characteristics	and	are	similar	in	each	of	the following	areas:	(i)	the	nature	of	the	services	they	provide,	(ii)	their	methods	of distribution,	 (iii)	 the	 types	 of	 clients	 they	 serve	 and	 (iv)	 the	 regulatory environments	in	which	they	operate.

The	cost	drivers	of	the	firm	taken	as	a	whole	—	compensation,	headcount	and levels	of	business	activity	—	are	broadly	similar	in	each	of	the	firm's	business segments.	Compensation	and	benefits	expenses	in	the	firm's	segments	reflect, among	 other	 factors,	 the	 overall	 performance	 of	 the	 firm	 as	 well	 as	 the performance	 of	 individual	 businesses.	 Consequently,	 pre-tax	 margins	 in	 one segment	of	the	firm's	business	may	be	significantly	affected	by	the	performance of	the	firm's	other	business	segments.

The	 firm	 allocates	 assets	 (including	 allocations	 of	 excess	 liquidity	 and	 cash, secured	client	financing	and	other	assets),	revenues	and	expenses	among	the	four reportable	business	segments.	Due	to	the	integrated	nature	of	these	segments, estimates	 and	 judgments	 are	 made	 in	 allocating	 certain	 assets,	 revenues	 and expenses.	 Transactions	 between	 segments	 are	 based	 on	 specific	 criteria	 or approximate	third-party	rates.	Total	operating	expenses	include	corporate	items that	 have	 not	 been	 allocated	 to	 individual	 business	 segments.	The	 allocation process	 is	 based	 on	 the	 manner	 in	 which	 management	 currently	 views	 the performance	of	the	segments.

The	segment	information	presented	in	the	table	below	is	prepared	according	to the	following	methodologies:

Ÿ	Revenues	and	expenses	directly	associated	with	each	segment	are	included	in determining	pre-tax	earnings.

Ÿ	Net	revenues	in	the	firm's	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.	Net	interest	is	included	in	segment

net	revenues	as	it	is	consistent	with	the	way	in	which	management	assesses segment	performance.

Ÿ	Overhead	expenses	not	directly	allocable	to	specific	segments	are	allocated ratably	based	on	direct	segment	expenses.

Management	 believes	 that	 the	 following	 information	 provides	 a	 reasonable representation	of	each	segment's	contribution	to	consolidated	pre-tax	earnings and	total	assets.

|  |  | For	the	Years	Ended	or	as	of	December | For	the	Years	Ended	or	as	of	December | For	the	Years	Ended	or	as	of	December |
| :--- | :--- | :--- | :--- | :--- |
| in\tmillions |  | 2012 | 2011 | 2010 |
| Investment\tBanking | Net\trevenues | \t $\t\t\t\t4,926 | \t $\t\t\t\t4,355 | $\t\t\t\t4,810 |
|  | Operating\texpenses | 3,330 | 2,995 | 3,459 |
|  | Pre-tax\tearnings | \t $\t\t\t\t1,596 | \t $\t\t\t\t1,360 | $\t\t\t\t1,351 |
|  | Segment\tassets | \t $\t\t\t\t1,712 | \t $\t\t\t\t1,983 | $\t\t\t\t1,870 |
| Institutional\tClient\tServices | Net\trevenues\t^1 | \t $\t\t18,124 | \t $\t\t17,280 | $\t\t21,796 |
|  | Operating\texpenses | 12,480 | 12,837 | 14,994 |
|  | Pre-tax\tearnings | \t $\t\t\t\t5,644 | \t $\t\t\t\t4,443 | $\t\t\t\t6,802 |
|  | Segment\tassets | \t $825,496 | \t $813,660 | $799,775 |
| Investing\t&amp;\tLending | Net\trevenues | \t $\t\t\t\t5,891 | \t $\t\t\t\t2,142 | $\t\t\t\t7,541 |
|  | Operating\texpenses | 2,666 | 2,673 | 3,361 |
|  | Pre-tax\tearnings/(loss) | \t $\t\t\t\t3,225 | \t $\t\t\t\t\t\t(531) | $\t\t\t\t4,180 |
|  | Segment\tassets | \t $\t\t98,600 | \t $\t\t94,330 | $\t\t95,373 |
| Investment\tManagement | Net\trevenues | \t $\t\t\t\t5,222 | \t $\t\t\t\t5,034 | $\t\t\t\t5,014 |
|  | Operating\texpenses | 4,294 | 4,020 | 4,082 |
|  | Pre-tax\tearnings | \t $\t\t\t\t\t\t\t928 | \t $\t\t\t\t1,014 | $\t\t\t\t\t\t\t932 |
|  | Segment\tassets | \t $\t\t12,747 | \t $\t\t13,252 | $\t\t14,314 |
| Total | Net\trevenues | \t $\t\t34,163 | \t $\t\t28,811 | $\t\t39,161 |
|  | Operating\texpenses | 22,956 | 22,642 | 26,269 |
|  | Pre-tax\tearnings | \t $\t\t11,207 | \t $\t\t\t\t6,169 | $\t\t12,892 |
|  | Total\tassets | \t $938,555 | \t $923,225 | $911,332 |

1.Includes	$121	million,	$115	million	and	$111	million	for	the	years	ended	December	2012,	December	2011	and	December	2010,	respectively,	of	realized	gains	on	available-for-sale	securities	held	in the	firm's	reinsurance	subsidiaries.

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

Operating	 expenses	 related	 to	 net	 provisions	 for	 litigation	 and	 regulatory proceedings,	previously	not	allocated	 to	 the	firm's	segments,	have	now	been allocated.	This	allocation	is	consistent	with	the	manner	in	which	management currently	views	the	performance	of	the	firm's	segments.	Reclassifications	have been	made	to	previously	reported	segment	amounts	to	conform	to	the	current presentation.

The	tables	below	present	the	amounts	of	net	interest	income	or	interest	expense included in	 net revenues,	 and the	 amounts	 of	 depreciation	 and	 amortization expense	included	in	pre-tax	earnings.

|  |  | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Investment\tBanking | \t$\t\t\t\t(15) | \t$\t\t\t\t\t\t(6) | \t$\t\t\t\t\t\t— |
| Institutional\tClient\tServices | 3,723 | 4,360 | 4,692 |
| Investing\t&amp;\tLending | 26 | 635 | 609 |
| Investment\tManagement | 146 | 203 | 202 |
| Total\tnet\tinterest\tincome | \t$3,880 | \t$5,192 | \t$5,503 |

|  |  | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Investment\tBanking | \t\t$\t\t\t164 | \t$\t\t\t174 | \t$\t\t\t172 |
| Institutional\tClient\tServices | 796 | 944 | 1,109 |
| Investing\t&amp;\tLending | 564 | 563 | 422 |
| Investment\tManagement | 204 | 188 | 200 |
| Total\tdepreciation\tand\tamortization\t^1 | \t\t$1,738 | \t$1,869 | \t$1,904 |

1.Includes real	 estate-related	 exit	 costs	 of	 $10	 million	 and	 $1	 million for the	 years	 ended December	2012	and	December	2010,	respectively,	that	have	not	been	allocated	to	the	firm's segments.

# Geographic	Information

Due	to	the	highly	integrated	nature	of	international	financial	markets,	the	firm manages	its	businesses	based	on	the	profitability	of	the	enterprise	as	a	whole. The	methodology	for	allocating	profitability	to	geographic	regions	is	dependent on	 estimates	 and	 management	 judgment	 because	 a	 significant	 portion	 of	 the firm's	activities	require	cross-border	coordination	in	order	to	facilitate	the	needs of	the	firm's	clients.

Geographic	results	are	generally	allocated	as	follows:

Ÿ	Investment	Banking:	location	of	the	client	and	investment	banking	team.

Ÿ	Institutional	Client	Services:	Fixed	Income,	Currency	and	Commodities	Client Execution,	 and	 Equities	 (excluding	 Securities	 Services):	 location	 of	 the market-making	desk;	Securities	Services:	location	of	the	primary	market	for the	underlying	security.

Ÿ	Investing	&	Lending:	Investing:	location	of	the	investment;	Lending:	location of	the	client.

Ÿ	Investment	Management:	location	of	the	sales	team.

The	table	below	presents	the	total	net	revenues,	pre-tax	earnings	and	net	earnings of	the	firm	by	geographic	region	allocated	based	on	the	methodology	referred	to above,	as

well	as	the	percentage	of	total	net	revenues,	pre-tax	earnings	and	net	earnings (excluding	Corporate)	for	each	geographic	region.

| Americas	^1 | $20,159 | 59% | $17,873 | 62% | $21,564 | 55% |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| EMEA\t^2 | 8,612 | 25 | 7,074 | 25 | 10,449 | 27 |
| Asia\t\t^3,\t4 | 5,392 | 16 | 3,864 | 13 | 7,148 | 18 |
| Total\tnet\trevenues | \t$34,163 | \t100% | \t$28,811 | \t100% | \t$39,161 | \t100% |
| Pre-tax\tearnings |  |  |  |  |  |  |
| Americas\t^1 | \t$\t\t6,960 | 61% | \t$\t\t5,307 | 85% | \t$\t\t7,303 | 55% |
| EMEA\t^2 | 2,943 | 26 | 1,210 | 19 | 3,029 | 23 |
| Asia\t^3 | 1,490 | 13 | (231) | (4) | 2,933 | 22 |
| Subtotal | 11,393 | \t100% | 6,286 | \t100% | 13,265 | \t100% |
| Corporate\t^5 | (186) |  | (117) |  | (373) |  |
| Total\tpre-tax\tearnings | \t$11,207 |  | \t$\t\t6,169 |  | \t$12,892 |  |
| Net\tearnings |  |  |  |  |  |  |
| Americas\t^1 | \t$\t\t4,259 | 56% | \t$\t\t3,522 | 78% | \t$\t\t4,322 | 50% |
| EMEA\t^2 | 2,369 | 31 | 1,103 | 24 | 2,200 | 26 |
| Asia\t^3 | 972 | 13 | (103) | (2) | 2,083 | 24 |
| Subtotal | 7,600 | \t100% | 4,522 | \t100% | 8,605 | \t100% |
| Corporate | (125) |  | (80) |  | (251) |  |
| Total\tnet\tearnings | \t$\t\t7,475 |  | \t$\t\t4,442 |  | \t$\t\t8,354 |  |

1.Substantially	all	relates	to	the	U.S.

3.Asia	also	includes	Australia	and	New	Zealand.

4.Net	revenues	in	Asia	in	2011	primarily	reflect	lower	net	revenues	in	Investing	&	Lending,	principally	due	to	losses	from	public	equities,	reflecting	a	significant	decline	in	equity	markets	in	Asia	during 2011.

5.Consists	of	charitable	contributions	of	$169	million,	$103	million	and	$345	million	for	the	years	ended	December	2012,	December	2011	and	December	2010,	respectively,	and	real	estate-related	exit costs	of	$17	million,	$14	million	and	$28	million	for	the	years	ended	December	2012,	December	2011	and	December	2010,	respectively.	Net	provisions	for	litigation	and	regulatory	proceedings, previously	included	in	Corporate	have	now	been	allocated	to	the	geographic	regions.	Reclassifications	have	been	made	to	previously	reported	geographic	region	amounts	to	conform	to	the	current presentation.

# Credit	Concentrations

Credit	 concentrations	 may	 arise	 from	 market	 making,	 client	 facilitation, investing,	 underwriting,	 lending	 and	 collateralized	 transactions	 and	 may	 be impacted	by	changes	in	economic,	industry	or	political	factors.	The	firm	seeks	to mitigate	credit	risk	by	actively	monitoring	exposures	and	obtaining	collateral from	counterparties	as	deemed	appropriate.

While	 the	 firm's	 activities	 expose	 it	 to	 many	 different	 industries	 and counterparties,	the	firm	routinely	executes	a	high	volume	of	transactions	with asset	 managers,	 investment	 funds,	 commercial	 banks,	 brokers	 and	 dealers, clearing	houses	and	exchanges,	which	results	in	significant	credit	concentrations.

In	 the	 ordinary	 course	 of	 business,	 the	 firm	 may	 also	 be	 subject	 to	 a concentration	 of	 credit	 risk	 to	 a	 particular	 counterparty,	 borrower	 or	 issuer, including	sovereign	issuers,	or	to	a	particular	clearing	house	or	exchange.

The	table	below	presents	the	credit	concentrations	in	assets	held	by	the	firm.	As of	December	2012	and	December	2011,	the	firm	did	not	have	credit	exposure	to any	other	counterparty	that	exceeded	2%	of	total	assets.

2.Principally	related	to	Germany,	Japan	and	the	United	Kingdom	as	of	both	December	2012 and	December	2011.

To	 reduce	 credit	 exposures,	 the	 firm	 may	 enter	 into	 agreements	 with counterparties	that	permit	the	firm	to	offset	receivables	and	payables	with	such counterparties	 and/or	 enable	 the	 firm	 to	 obtain	 collateral	 on	 an	 upfront	 or contingent	basis.	Collateral	obtained	by	the	firm	related	to	derivative	assets	is principally	cash	and	is	held	by	the	firm	or	a	third-party	custodian.	Collateral obtained	 by	 the	 firm	 related	 to	 resale	 agreements	 and	 securities	 borrowed transactions	is	primarily	U.S.	government	and	federal	agency	obligations	and non-U.S.	government	and	agency	obligations.	See	Note	9	for	further	information about	collateralized	agreements	and	financings.

The	table	below	presents	U.S.	government	and	federal	agency	obligations,	and non-U.S.	government	and	agency	obligations	that	collateralize	resale	agreements and	securities	borrowed	 transactions	(including	 those	 in	"Cash	and	securities segregated	 for	 regulatory	 and	 other	 purposes").	 Because	 the	 firm's	 primary credit	exposure	on	such	transactions	is	to	the	counterparty	to	the	transaction,	the firm	 would	 be	 exposed	 to	 the	 collateral	 issuer	 only	 in	 the	 event	 of counterparty	default.

1.Principally	consisting	of	securities	issued	by	the	governments	of	Germany	and	France.

# Legal	Proceedings

The	 firm	 is	 involved	 in	 a	 number	 of	 judicial,	 regulatory	 and	 arbitration proceedings	 (including	 those	 described	 below)	 concerning	 matters	 arising	 in connection	with	the	conduct	of	the	firm's	businesses.	Many	of	these	proceedings are	 in	 early	 stages,	 and	 many	 of	 these	 cases	 seek	 an	 indeterminate amount	of	damages.

Under	ASC	450,	an	event	is	"reasonably	possible"	if	"the	chance	of	the	future event	or	events	occurring	is	more	than	remote	but	less	than	likely"	and	an	event is	"remote"	if	"the	chance	of	the	future	event	or	events	occurring	is	slight."	Thus, references	to	the	upper	end	of	the	range	of	reasonably	possible	loss	for	cases	in which	the	firm	is	able	to	estimate	a	range	of	reasonably	possible	loss	mean	the upper	end	of	the	range	of	loss	for	cases	for	which	the	firm	believes	the	risk	of loss	 is	 more	 than	 slight.	The	 amounts	 reserved	 against	 such	 matters	 are	 not significant	as	compared	to	the	upper	end	of	the	range	of	reasonably	possible	loss.

With	respect	to	proceedings	described	below	for	which	management	has	been able	 to	estimate	a	range	of	reasonably	possible	 loss	where	(i)	plaintiffs	have claimed	an	amount	of	money	damages,	(ii)	the	firm	is	being	sued	by	purchasers in	an	underwriting	and	is	not	being	indemnified	by	a	party	that	the	firm	believes will	 pay	 any	 judgment,	 or	 (iii)	 the	 purchasers	 are	 demanding	 that	 the	 firm repurchase	securities,	management	has	estimated	the	upper	end	of	the	range	of reasonably	possible	loss	as	being	equal	to	(a)	in	the	case	of	(i),	the	amount	of money	damages	claimed,	(b)	in	the	case	of	(ii),	the	amount	of	securities	that	the firm	sold	in	the	underwritings	and	(c)	in	the	case	of	(iii),	the	price	that	purchasers paid	for	the	securities	less	the	estimated	value,	if	any,	as	of	December	2012	of the	relevant	securities,	in	each	of	cases	(i),	(ii)	and	(iii),	taking	into	account	any factors	believed	to	be	relevant	to	the	particular	proceeding	or	proceedings	of	that type.	As	of	the	date	hereof,	the	firm	has	estimated	the	upper	end	of	the	range	of reasonably	 possible	 aggregate	 loss	 for	 such	 proceedings	 and	 for	 any	 other proceedings	described	below	where	management	has	been	able	 to	estimate	a range	of	reasonably	possible	aggregate	loss	to	be	approximately	$3.5	billion.

Management	is	generally	unable	to	estimate	a	range	of	reasonably	possible	loss for	proceedings	other	than	those	included	in	the	estimate	above,	including	where (i)	plaintiffs	have	not	claimed	an	amount	of	money	damages,	unless

management	 can	 otherwise	 determine	 an	 appropriate	 amount,	 (ii)	 the proceedings	are	in	early	stages,	(iii)	there	is	uncertainty	as	to	the	likelihood	of	a class	being	certified	or	the	ultimate	size	of	the	class,	(iv)	there	is	uncertainty	as to	the	outcome	of	pending	appeals	or	motions,	(v)	there	are	significant	factual issues	to	be	resolved,	and/or	(vi)	there	are	novel	legal	issues	presented.	However, for	 these	 cases,	 management	 does	 not	 believe,	 based	 on	 currently	 available information,	that	the	outcomes	of	such	proceedings	will	have	a	material	adverse effect	on	the	firm's	financial	condition,	though	the	outcomes	could	be	material to	the	firm's	operating	results	for	any	particular	period,	depending,	in	part,	upon the	operating	results	for	such	period.

IPO	 Process	 Matters.	 Group Inc.	 and	 GS&Co.	 are	 among	 the	 numerous financial	services	companies	that	have	been	named	as	defendants	in	a	variety	of lawsuits	 alleging	 improprieties	 in	 the	 process	 by	 which	 those	 companies participated	in	the	underwriting	of	public	offerings.

GS&Co.	 has	 been	 named	 as	 a	 defendant	 in	 an	 action	 commenced	 on May	15,	2002	in	New	York	Supreme	Court,	New	York	County,	by	an	official committee	of	unsecured	creditors	on	behalf	of	eToys,	Inc.,	alleging	that	the	firm intentionally	underpriced	eToys,	Inc.'s	initial	public	offering.	The	action	seeks, among	 other	 things,	 unspecified	 compensatory	 damages	 resulting	 from	 the alleged	 lower	 amount	 of	 offering	 proceeds.	 On	 appeal	 from	 rulings	 on GS&Co.'s	motion	to	dismiss,	the	New	York	Court	of	Appeals	dismissed	claims for	 breach	 of	 contract,	 professional	 malpractice	 and	 unjust	 enrichment,	 but permitted	claims	for	breach	of	fiduciary	duty	and	fraud	to	continue.	On	remand, the	 lower	 court	 granted	 GS&Co.'s	 motion	 for	 summary	 judgment	 and,	 on December	8,	2011,	the	appellate	court	affirmed	the	lower	court's	decision.	On September	 6,	 2012,	 the	 New	 York	 Court	 of	 Appeals	 granted	 the	 creditors' motion	for	leave	to	appeal.

Group	Inc.	and	certain	of	its	affiliates	have,	together	with	various	underwriters in	 certain	 offerings,	 received	 subpoenas	 and	 requests	 for	 documents	 and information	 from	 various	 governmental agencies and self-regulatory organizations	 in	 connection	 with	 investigations	 relating	 to	 the	 public offering	process.	Goldman	Sachs	has	cooperated	with	these	investigations.

World	Online	Litigation.	In	March	2001,	a	Dutch	shareholders'	association initiated	legal	proceedings	for	an	unspecified	amount	of	damages	against	GSI and	others	 in	Amsterdam	District	Court	 in	connection	with	 the	 initial	public offering	of	World	Online	in	March	2000,	alleging	misstatements	and	omissions in	the	offering	materials	and	that	the	market	was	artificially	inflated	by	improper public	statements	and	stabilization	activities.	Goldman	Sachs	and	ABN	AMRO Rothschild	served	as	joint	global	coordinators	of	the	approximately	€2.9	billion offering.	GSI	underwrote	20,268,846	shares	and	GS&Co.	underwrote	6,756,282 shares	for	a	total	offering	price	of	approximately	€1.16	billion.

The	district	court	rejected	the	claims	against	GSI	and	ABN	AMRO,	but	found World	Online	liable	in	an	amount	to	be	determined.	On	appeal,	the	Netherlands Court	of	Appeals	affirmed	in	part	and	reversed	in	part	the	decision	of	the	district court,	holding	that	certain	of	the	alleged	disclosure	deficiencies	were	actionable as	to	GSI	and	ABN	AMRO.	On	further	appeal,	the	Netherlands	Supreme	Court affirmed	 the	 rulings	 of	 the	 Court	 of	 Appeals,	 except	 that	 it	 found	 certain additional	aspects	of	the	offering	materials	actionable	and	held	that	individual investors	could	potentially	hold	GSI	and	ABN	AMRO	responsible	for	certain public	statements	and	press	releases	by	World	Online	and	its	former	CEO.	The parties	entered	into	a	definitive	settlement	agreement,	dated	July	15,	2011,	and GSI	has	paid	the	full	amount	of	its	contribution.	In	the	first	quarter	of	2012,	GSI and	 ABN	 AMRO,	 on	 behalf	 of	 the	 underwriting	 syndicate,	 entered	 into	 a settlement	 agreement	 with	 respect	 to	 a	 claim	 filed	 by	 another	 shareholders' association,	and	has	paid	the	settlement	amount	in	full.	Other	shareholders	have made	 demands	 for	 compensation	 of	 alleged	 damages,	 and	 GSI	 and	 other syndicate	members	are	discussing	the	possibility	of	settlement	with	certain	of these	shareholders.

# Adelphia Communications Fraudulent Conveyance Litigation.

GS&Co.	is	named	as	a	defendant	in	two	proceedings	commenced	in	the	U.S. Bankruptcy	Court	for	the	Southern	District	of	New	York,	one	on	July	6,	2003	by a	creditors	committee,	and	the	second	on	or	about	July	31,	2003	by	an	equity committee	 of	 Adelphia	 Communications,	 Inc.	 Those	 proceedings	 were consolidated	 in	 a	 single	 amended	 complaint	 filed	 by	 the	Adelphia	 Recovery Trust	on	October	31,	2007.	The	complaint	seeks,	among	other	things,	to	recover, as	 fraudulent	 conveyances,	 approximately $62.9	 million allegedly	 paid	 to GS&Co.	 by	 Adelphia	 Communications,	 Inc.	 and	 its	 affiliates	 in	 respect	 of margin	calls	made	 in	 the	ordinary	course	of	business	on	accounts	owned	by members	of	the	family	that	formerly	controlled	Adelphia	Communications,	Inc. The	district	court	assumed	jurisdiction	over	the	action	and,	on	April	8,	2011, granted	 GS&Co.'s	 motion	 for	 summary	 judgment.	The	 plaintiff	 appealed	 on May	6,	2011.

Specialist	Matters.	Spear,	Leeds	&	Kellogg	Specialists	LLC,	Spear,	Leeds	& Kellogg,	 L.P.	 and	 Group	 Inc.	 are	 among	 numerous	 defendants	 named	 in purported	class	actions	brought	beginning	in	October	2003	on	behalf	of	investors in	 the	 U.S.	 District	 Court	 for	 the	 Southern	 District	 of	 New	 York	 alleging violations	of	the	federal	securities	laws	and	state	common	law	in	connection	with NYSE	floor	specialist	activities.	On	October	24,	2012,	the	parties	entered	into	a definitive	settlement	agreement,	subject	to	court	approval.	The	firm	has	reserved the	full	amount	of	its	proposed	contribution	to	the	settlement.

Fannie	Mae	Litigation.	GS&Co.	was	added	as	a	defendant	in	an	amended complaint	filed	on	August	14,	2006	in	a	purported	class	action	pending	in	the U.S.	District	Court	for	the	District	of	Columbia.	The	complaint	asserts	violations of	 the	 federal	 securities	 laws	 generally	 arising	 from	 allegations	 concerning Fannie	 Mae's	 accounting	 practices	 in	 connection	 with	 certain	 Fannie	 Mae- sponsored	REMIC	 transactions	 that	were	allegedly	arranged	by	GS&Co.	The complaint	does	not	specify	a	dollar	amount	of	damages.	The	other	defendants include	Fannie	Mae,	certain	of	its	past	and	present	officers	and	directors,	and accountants.	 By	 a	 decision	 dated	 May 8, 2007,	 the	 district	 court	 granted GS&Co.'s	motion	to	dismiss	the	claim	against	it.	The	time	for	an	appeal	will	not begin	to	run	until	disposition	of	the	claims	against	other	defendants.	A	motion	to stay	the	action	filed	by	the	Federal	Housing	Finance	Agency	(FHFA),	which took	control	of	the	foregoing	action	following	Fannie	Mae's	conservatorship, was	denied	on	November	14,	2011.

Compensation-Related	Litigation.	 On	 January	 17,	 2008,	 Group	 Inc.,	 its Board,	 executive	 officers	 and	 members	 of	 its	 management	 committee	 were named	as	defendants	in	a	purported	shareholder	derivative	action	in	the	U.S. District	Court	for	the	Eastern	District	of	New	York	predicting	that	the	firm's 2008	Proxy	Statement	would	violate	the	federal	securities	laws	by	undervaluing certain	 stock	 option	 awards	 and	 alleging	 that	 senior	 management	 received excessive	compensation	for	2007.	The	complaint	seeks,	among	other	things,	an equitable	 accounting	 for	 the	 allegedly	 excessive	 compensation.	 Plaintiff's motion	for	a	preliminary	injunction	to	prevent	the	2008	Proxy	Statement	from using	options	valuations	that	the	plaintiff	alleges	are	incorrect	and	to	require	the amendment	of	SEC	Forms	4	filed	by	certain	of	the	executive	officers	named	in the	complaint	to	reflect	the	stock	option	valuations	alleged	by	the	plaintiff	was denied,	 and	 plaintiff's	 appeal	 from	 this	 denial	 was	 dismissed.	 On February	 13,	 2009,	 the	 plaintiff	 filed	 an	 amended	 complaint,	 which	 added purported	 direct	 (i.e.,	 non-derivative)	 claims	 based	 on	 substantially	 the	 same theory.	The	plaintiff	filed	a	further	amended	complaint	on	March	24,	2010,	and the	defendants'	motion	to	dismiss	this	further	amended	complaint	was	granted	on the	ground	that	dismissal	of	the	shareholder	plaintiff's	prior	action	relating	to	the firm's	2007	Proxy	Statement	based	on	the	failure	to	make	a	demand	to

the	Board	precluded	relitigation	of	demand	futility.	On	December	19,	2011,	the appellate	 court	 vacated	 the	 order	 of	 dismissal,	 holding	 only	 that	 preclusion principles	 did	 not	 mandate	 dismissal	 and	 remanding	 for	 consideration	 of	 the alternative	grounds	for	dismissal.	On	April	18,	2012,	plaintiff	disclosed	that	he no	longer	is	a	Group	Inc.	shareholder	and	thus	lacks	standing	to	continue	to prosecute	the	action.	On	January	7,	2013,	the	district	court	dismissed	the	claim due	 to	 the	 plaintiff's	 lack	 of	 standing	 and	 the	 lack	 of	 any intervening	shareholder.

On	March	24,	2009,	the	same	plaintiff	filed	an	action	in	New	York	Supreme Court,	New	York	County,	against	Group	Inc.,	its	directors	and	certain	senior executives	 alleging	 violation	 of	 Delaware	 statutory	 and	 common	 law	 in connection	with	substantively	similar	allegations	regarding	stock	option	awards. On	 January	 4,	 2013,	 another	 purported	 shareholder	 moved	 to	 intervene	 as plaintiff,	 which	 defendants	 have	 opposed.	 On	 January	 15,	 2013,	 the	 court dismissed	the	action	only	as	to	the	original	plaintiff	with	prejudice	due	to	his	lack of	standing.

Mortgage-Related	Matters.	On	April	16,	2010,	the	SEC	brought	an	action (SEC	Action)	under	the	U.S.	federal	securities	laws	in	the	U.S.	District	Court	for the	Southern	District	of	New	York	against	GS&Co.	and	Fabrice	Tourre,	a	former employee,	in	connection	with	a	CDO	offering	made	in	early	2007	(ABACUS 2007-AC1	transaction),	alleging	that	the	defendants	made	materially	false	and misleading	statements	to	investors	and	seeking,	among	other	things,	unspecified monetary	penalties.	Investigations	of	GS&Co.	by	FINRA	and	of	GSI	by	the	FSA were	subsequently	 initiated,	and	Group	Inc.	and	certain	of	 its	affiliates	have received	subpoenas	and	requests	for	information	from	other	regulators,	regarding CDO	 offerings,	 including	 the	 ABACUS	 2007-AC1	 transaction,	 and	 related matters.

On	 July	 14,	 2010,	 GS&Co.	 entered	 into	 a	 consent	 agreement	 with	 the	 SEC, settling	all	claims	made	against	GS&Co.	in	the	SEC	Action,	pursuant	to	which GS&Co.	paid	$550	million	of	disgorgement	and	civil	penalties,	and	which	was approved	 by	 the	 U.S.	 District	 Court	 for	 the	 Southern	 District	 of	 New	York on	July	20,	2010.

On	 January	 6,	 2011,	ACA	 Financial	 Guaranty	 Corp.	 filed	 an	 action	 against GS&Co.	 in	 respect	 of	 the	 ABACUS	 2007-AC1	 transaction	 in	 New	 York Supreme	 Court,	 New	 York	 County.	 The	 complaint	 includes	 allegations	 of fraudulent	inducement,	fraudulent	concealment	and	unjust	enrichment	and	seeks at	least	$30	million	in	compensatory	damages,	at	least	$90	million	in	punitive damages	and	unspecified	disgorgement.	On	April	25,	2011,	the	plaintiff	filed	an amended	 complaint	 and,	 on	 June	 3,	 2011,	 GS&Co.	 moved	 to	 dismiss	 the amended	complaint.	By	a	decision	dated	April	23,	2012,	the	court	granted	the motion	to	dismiss	as	to	the	unjust	enrichment	claim	and	denied	the	motion	as	to the	other	claims,	and	on	May	29,	2012,	GS&Co.	appealed	the	decision	to	the extent	that	its	motion	was	denied	and	filed	counterclaims	for	breach	of	contract and	fraudulent	inducement,	and	third-party	claims	against	ACA	Management, LLC	 for	 breach	 of	 contract,	 unjust	 enrichment	 and	 indemnification.	 ACA Financial	 Guaranty	 Corp.	 and	 ACA	 Management,	 LLC	 moved	 to	 dismiss GS&Co.'s	 counterclaims	 and	 third-party	 claims	 on	 August 31, 2012.	 On January	30,	2013,	the	court	granted	ACA's	motion	for	leave	to	file	an	amended complaint	naming	a	third	party	to	the	ABACUS	2007-AC1	transaction	as	an additional	defendant.

Since	 April 23, 2010,	 the	 Board	 has	 received	 letters	 from	 shareholders demanding	that	the	Board	take	action	to	address	alleged	misconduct	by	GS&Co., the	Board	and	certain	officers	and	employees	of	Group	Inc.	and	its	affiliates. These	demands,	which	the	Board	has	rejected,	generally	alleged	misconduct	in connection with the firm's securitization practices, including the ABACUS	2007-AC1	transaction,	the	alleged	failure	by	Group	Inc.	to	adequately disclose	the	SEC	investigation	that	led	to	the	SEC	Action,	and	Group	Inc.'s	2009 compensation	practices.

In	addition,	the	Board	has	received	books	and	records	demands	from	several shareholders	for	materials	relating	to,	among	other	subjects,	the	firm's	mortgage servicing	and	foreclosure	activities,	participation	in	federal	programs	providing assistance	to	financial	institutions	and	homeowners,	loan	sales	to	Fannie	Mae and	Freddie	Mac,	mortgage-related	activities	and	conflicts	management.

Beginning	April	26,	2010,	a	number	of	purported	securities	law	class	actions have	been	filed	in	the	U.S.	District	Court	for	the	Southern	District	of	New	York challenging	 the	 adequacy	 of	 Group	 Inc.'s	 public	 disclosure	 of,	 among	 other things,	the	firm's	activities	in	the	CDO	market	and	the	SEC	investigation	that	led to	 the	 SEC	 Action.	 The	 purported	 class	 action	 complaints,	 which	 name	 as defendants	Group	Inc.	and	certain	officers	and	employees	of	Group	Inc.	and	its affiliates,	have	been	consolidated,	generally	allege	violations	of	Sections	10(b) and	20(a)	of	the	Exchange	Act	and	seek	unspecified	damages.	Plaintiffs	filed	a consolidated	 amended	 complaint	 on	 July	 25,	 2011.	 On	 October	 6,	 2011,	 the defendants	moved	to	dismiss,	and	by	a	decision	dated	June	21,	2012,	the	district court	 dismissed	 the	 claims	 based	 on	 Group	 Inc.'s	 not	 disclosing	 that	 it	 had received	a	"Wells"	notice	from	the	staff	of	the	SEC	related	to	the	ABACUS 2007-AC1	transaction,	but	permitted	the	plaintiffs'	other	claims	to	proceed.

On	February	1,	2013,	a	putative	shareholder	derivative	action	was	filed	in	the U.S.	District	Court	for	the	Southern	District	of	New	York	against	Group	Inc.	and certain	of	its	officers	and	directors	in	connection	with	mortgage-related	activities during	2006	and	2007,	including	three	CDO	offerings.	The	derivative	complaint, which	is	based	on	similar	allegations	to	those	at	issue	in	the	consolidated	class action	discussed	above	and	purported	shareholder	derivative	actions	that	were previously	 dismissed,	 includes	 allegations	 of	 breach	 of	 fiduciary	 duty, challenges	 the	 accuracy	 and	 adequacy	 of	 Group	 Inc.'s	 disclosure	 and	 seeks, among	other	things,	declaratory	relief,	unspecified	compensatory	and	punitive damages	and	restitution	from	 the	 individual	defendants	and	certain	corporate governance	reforms.

In	June	2012,	the	Board	received	a	demand	from	a	shareholder	that	the	Board investigate	and	take	action	relating	to	the	firm's	mortgage-related	activities	and to	 stock	 sales	 by	 certain	 directors	 and	 executives	 of	 the	 firm.	 On February	15,	2013,	this	shareholder	filed	a	putative	shareholder	derivative	action in	the	New	York	Supreme	Court,	New	York	County,	against	Group	Inc.	and certain	current	or	former	directors	and	employees,	based	on	these	activities	and stock	sales.	The	derivative	complaint	includes	allegations	of	breach	of	fiduciary duty,	unjust	enrichment,	abuse	of	control,	gross	mismanagement	and	corporate waste,	 and	 seeks,	 among	 other	 things,	 unspecified	 monetary	 damages, disgorgement	 of	 profits	 and	 certain	 corporate	 governance	 and	 disclosure reforms.

GS&Co.,	 Goldman	 Sachs	 Mortgage	 Company	 (GSMC)	 and	 GS	 Mortgage Securities	 Corp.	 (GSMSC)	 and	 three	 current	 or	 former	 Goldman	 Sachs employees	 are	 defendants	 in	 a	 putative	 class	 action	 commenced	 on December	11,	2008	in	the	U.S.	District	Court	for	the	Southern	District	of	New York	 brought	 on	 behalf	 of	 purchasers	 of	 various	 mortgage	 pass-through certificates	and	asset-backed	certificates	issued	by	various	securitization	trusts established	by	the	firm	and	underwritten	by	GS&Co.	in	2007.	The	complaint generally	alleges	that	the	registration	statement	and	prospectus	supplements	for the	 certificates	 violated	 the	 federal	 securities	 laws,	 and	 seeks	 unspecified compensatory	 damages	 and	 rescission	 or	 rescissionary	 damages.	 Following dismissals	of	certain	of	the	plaintiff's	claims	under	the	initial	and	three	amended complaints,	on	May	5,	2011,	the	court	granted	plaintiff's	motion	for	entry	of	a final	judgment	dismissing	all	its	claims,	thereby	allowing	plaintiff	to	appeal.	The plaintiff	 appealed	 from	 the	 dismissal	 with	 respect	 to	 all	 17	 of	 the	 offerings included	in	its	original	complaint.	By	a	decision	dated	September	6,	2012,	the U.S.	 Court	 of	 Appeals	 for	 the	 Second	 Circuit	 affirmed	 the	 district	 court's dismissal	of	plaintiff's	claims	with	respect	to	10	of	the	offerings	included	in plaintiff's	original	complaint	but	vacated	the	dismissal	and	remanded	the	case	to the	district	court	with	instructions	to	reinstate	the	plaintiff's	claims	with	respect to	the	other	seven	offerings.	On	October	26,	2012,	the	defendants	filed	a	petition for	certiorari	with	the	U.S.	Supreme	Court	seeking	review	of	the	Second	Circuit decision.	On	October	31,	2012,	 the	plaintiff	served	defendants	with	a	fourth amended	 complaint	 relating	 to	 those	 seven	 offerings,	 plus	 seven	 additional offerings.	On	June	3,	2010,	another	investor	(who	had	unsuccessfully	sought	to intervene	 in	 the	 action)	 filed	 a	 separate	 putative	 class	 action	 asserting substantively	similar	allegations	relating	to	one	of	the	offerings	included	in	the initial	plaintiff's	complaint.	The	district	court	twice	granted	defendants'	motions to	dismiss	this	separate	action,	both	times	with	leave	to	replead.	On	July	9,	2012, that	separate	plaintiff	filed	a	second	amended	complaint,	and	the

defendants	moved	to	dismiss	on	September	21,	2012.	On	December	26,	2012, that	separate	plaintiff	filed	a	motion	to	amend	the	second	amended	complaint	to add	 claims	 with	 respect	 to	 two	 additional	 offerings	 included	 in	 the	 initial plaintiff's	complaint.	The	securitization	trusts	issued,	and	GS&Co.	underwrote, approximately	$11	billion	principal	amount	of	certificates	to	all	purchasers	in	the fourteen	offerings	at	issue	in	the	complaints.

Group	 Inc.,	 GS&Co.,	 GSMC	 and	 GSMSC	 are	 among	 the	 defendants	 in	 a separate	 putative	 class	 action	 commenced	 on	 February	 6,	 2009	 in	 the	 U.S. District	 Court	 for	 the	 Southern	 District	 of	 New	 York	 brought	 on	 behalf	 of purchasers	 of	 various	 mortgage	 pass-through	 certificates	 and	 asset-backed certificates	issued	by	various	securitization	trusts	established	by	the	firm	and underwritten	by	GS&Co.	in	2006.	The	other	original	defendants	include	three current	or	former	Goldman	Sachs	employees	and	various	rating	agencies.	The second	amended	complaint	generally	alleges	that	the	registration	statement	and prospectus	supplements	for	the	certificates	violated	the	federal	securities	laws, and	 seeks	 unspecified	 compensatory	 and	 rescissionary	 damages.	 Defendants moved	 to	 dismiss	 the	 second	 amended	 complaint.	 On	 January	 12,	 2011,	 the district	court	granted	the	motion	to	dismiss	with	respect	to	offerings	in	which plaintiff	had	not	purchased	securities	as	well	as	all	claims	against	 the	rating agencies,	but	denied	the	motion	to	dismiss	with	respect	to	a	single	offering	in which	 the	 plaintiff	 allegedly	 purchased	 securities.	 These	 trusts	 issued,	 and GS&Co.	 underwrote,	 approximately $698 million	 principal	 amount	 of certificates	to	all	purchasers	in	the	offerings	at	issue	in	the	complaint	(excluding those	offerings	for	which	the	claims	have	been	dismissed).	On	February	2,	2012, the	 district	 court	 granted	 the	 plaintiff's	 motion	 for	 class	 certification	 and	 on June	 13,	 2012,	 the	 U.S.	 Court	 of	 Appeals	 for	 the	 Second	 Circuit	 granted defendants'	 petition	 to	 review	 that	 ruling.	 On	 November	 8,	 2012,	 the	 court approved	a	settlement	between	the	parties,	and	GS&Co.	has	paid	the	full	amount of	 the	 settlement	 into	 an	 escrow	 account.	The	 time	 for	 any	 appeal	 from	 the approval	of	the	settlement	has	expired.

On	September	30,	2010,	a	putative	class	action	was	filed	in	the	U.S.	District Court	for	the	Southern	District	of	New	York	against	GS&Co.,	Group	Inc.	and two	former	GS&Co.	employees	on	behalf	of	investors	in	$821	million	of	notes issued	in	2006	and	2007	by	two	synthetic	CDOs	(Hudson	Mezzanine	2006-1	and 2006-2).	The	complaint,	which	was	amended	on	February	4,	2011,	asserts	federal securities	 law	and	common	 law	claims,	and	seeks	unspecified	compensatory, punitive	and	other	damages.	The	defendants	moved	to	dismiss	on	April	5,	2011, and	the	motion	was	granted	as	to	plaintiff's	claim	of	market	manipulation	and denied	 as	 to	 the	 remainder	 of	 plaintiff's	 claims	 by	 a	 decision	 dated March	21,	2012.	On	May	21,	2012,	the	defendants	counterclaimed	for	breach	of contract	 and	 fraud.	 On	 December 17, 2012,	 the	 plaintiff	 moved	 for	 class certification.

GS&Co.,	GSMC	and	GSMSC	are	among	the	defendants	in	a	lawsuit	filed	in August	2011	by	CIFG	Assurance	of	North	America,	Inc.	(CIFG)	in	New	York Supreme	 Court,	 New	 York	 County.	 The	 complaint	 alleges	 that	 CIFG	 was fraudulently	 induced	 to	provide	credit	enhancement	for	a	2007	securitization sponsored	 by	 GSMC,	 and	 seeks,	 among	 other	 things,	 the	 repurchase	 of $24.7	 million in	 aggregate	 principal	 amount	 of	 mortgages	 that	 CIFG	 had previously	 stated	 to	 be	 non-conforming,	 an	 accounting	 for	 any	 proceeds associated	with	mortgages	discharged	from	 the	securitization	and	unspecified compensatory	damages.	On	October	17,	2011,	the	Goldman	Sachs	defendants moved	to	dismiss.	By	a	decision	dated	May	1,	2012,	the	court	dismissed	the fraud	 and	 accounting	 claims	 but	 denied	 the	 motion	 as	 to	 certain	 breach	 of contract	claims	 that	were	also	alleged.	On	June	6,	2012,	 the	Goldman	Sachs defendants	filed	counterclaims	for	breach	of	contract.	In	addition,	 the	parties have	each	appealed	the	court's	May	1,	2012	decision	to	the	extent	adverse.	The parties	have	been	ordered	to	mediate,	and	proceedings	in	the	trial	court	have been	stayed	pending	mediation.

In	addition,	on	January	15,	2013,	CIFG	filed	a	complaint	against	GS&Co.	in New	York	Supreme	Court,	New	York	County,	alleging	 that	GS&Co.	falsely represented	 that	 a	 third	 party	 would	 independently	 select	 the	 collateral	 for	 a 2006	 CDO.	 CIFG	 seeks	 unspecified	 compensatory	 and	 punitive	 damages, including	approximately	$10	million	in	connection	with	its	purchase	of	notes	and over	$30	million	for	payments	to	discharge	alleged	liabilities	arising	from	its issuance	of	a	financial	guaranty	 insurance	policy	guaranteeing	payment	on	a credit	default	swap	referencing	the	CDO.

Various	 alleged	 purchasers	 of,	 and	 counterparties	 involved	 in	 transactions relating	to,	mortgage	pass-through	certificates,	CDOs	and	other	mortgage-related products	(including	certain	Allstate	affiliates,	Bank	Hapoalim	B.M.,	Basis	Yield Alpha	 Fund	 (Master),	 Bayerische	 Landesbank,	 Cambridge	 Place	 Investment Management	 Inc.,	 the	 Charles	 Schwab	 Corporation,	 Deutsche	 Zentral- Genossenschaftbank,	 the	 FDIC	 (as	 receiver	 for	 Guaranty	 Bank),	 the	 Federal Home	Loan	Banks	of	Boston,	Chicago,	Indianapolis	and	Seattle,	the	FHFA	(as conservator	for	Fannie	Mae	and	Freddie	Mac),	HSH	Nordbank,	IKB	Deutsche Industriebank	AG,	Landesbank	Baden-Württemberg,	Joel	I.	Sher	(Chapter	11 Trustee)	on	behalf	of	TMST,	Inc.	(TMST),	f/k/a	Thornburg	Mortgage,	Inc.	and certain	 TMST	 affiliates,	 John	 Hancock	 and	 related	 parties,	 Massachusetts Mutual	Life	Insurance	Company,	MoneyGram	Payment	Systems,	Inc.,	National Australia	Bank,	 the	National	Credit	Union	Administration,	Phoenix	Light	SF Limited	 and	 related	 parties,	 Prudential	 Insurance	 Company	 of	 America	 and related	 parties,	 Royal	 Park	 Investments	 SA/NV,	 Sealink	 Funding	 Limited, Stichting	 Pensioenfonds	 ABP,	 The	 Union	 Central	 Life	 Insurance	 Company, Ameritas	 Life	 Insurance	 Corp.,	Acacia	 Life	 Insurance	 Company,	 Watertown Savings	Bank,	and	The	Western	and	Southern	Life	Insurance	Co.)	have	filed complaints	 or	 summonses	 with	 notice	 in	 state	 and	 federal	 court	 or	 initiated arbitration	proceedings	against	firm	affiliates,	generally	alleging	that	the	offering documents	for	the	securities	that	they	purchased	contained	untrue	statements	of material	 fact	 and	 material	 omissions	 and	 generally	 seeking	 rescission	 and/or damages.	Certain	of	these	complaints	allege	fraud	and	seek	punitive	damages. Certain	of	these	complaints	also	name	other	firms	as	defendants.

A	number	of	other	entities	(including	American	International	Group,	Inc.	(AIG), Deutsche	 Bank	 National	 Trust	 Company,	 John	 Hancock	 and	 related	 parties, M&T	 Bank,	 Norges	 Bank	 Investment	 Management	 and	 Selective	 Insurance Company)	have	threatened	to	assert	claims	of	various	types	against	the	firm	in connection	with	various	mortgage-related	transactions,	and	the	firm	has	entered into	 agreements	 with	 a	 number	 of	 these	 entities	 to	 toll	 the	 relevant statute	of	limitations.

As	 of	 the	 date	 hereof,	 the	 aggregate	 notional	 amount	 of	 mortgage-related securities	sold	to	plaintiffs	in	active	cases	brought	against	the	firm	where	those plaintiffs	 are	 seeking	 rescission	 of	 such	 securities	 was	 approximately $20.7	billion	(which	does	not	reflect	adjustment	for	any	subsequent	paydowns	or distributions	or	any	residual	value	of	such	securities,	statutory	interest	or	any other	 adjustments	 that	 may	 be	 claimed).	 This	 amount	 does	 not	 include	 the threatened	claims	noted	above,	potential	claims	by	these	or	other	purchasers	in the	same	or	other	mortgage-related	offerings	that	have	not	actually	been	brought against	the	firm,	or	claims	that	have	been	dismissed.

In	June	2011,	Heungkuk	Life	Insurance	Co.	Limited	(Heungkuk)	filed	a	criminal complaint	against	certain	past	and	present	employees	of	the	firm	in	South	Korea relating	to	its	purchase	of	a	CDO	securitization	from	Goldman	Sachs.	Heungkuk had	earlier	initiated	civil	litigation	against	the	firm	relating	to	this	matter.	This civil	 litigation	 has	 now	 been	 settled	 and,	 on	 January	 23,	 2013,	 Heungkuk withdrew	the	criminal	complaint	in	its	entirety.

Group	 Inc.	 and	 GS	 Bank	 USA	 have	 entered	 into	 a	 Consent	 Order	 and	 a settlement	in	principle	with	the	Federal	Reserve	Board	relating	to	the	servicing	of residential	mortgage	loans	and	foreclosure	practices.	In	addition,	GS	Bank	USA has	entered	into	an	Agreement	on	Mortgage	Servicing	Practices	with	the	New York	State	Department	of	Financial	Services,	Litton	and	Ocwen.	See	Note	18 for	information	about	these	settlements.

Group	 Inc.,	 GS&Co.	 and	 GSMC	 are	 among	 the	 numerous	 financial	 services firms	named	as	defendants	in	a	qui	tam	action	originally	filed	by	a	relator	on April	7,	2010	purportedly	on	behalf	of	the	City	of	Chicago	and	State	of	Illinois in	 Cook	 County,	 Illinois	 Circuit	 Court	 asserting	 claims	 under	 the	 Illinois Whistleblower	Reward	and	Protection	Act	and	Chicago	False	Claims	Act,	based on	 allegations	 that	 defendants	 had	 falsely	 certified	 compliance	 with	 various Illinois	 laws,	 which	 were	 purportedly	 violated	 in	 connection	 with	 mortgage origination	and	servicing	activities.	The	complaint,	which	was	originally	filed under	seal,	seeks	treble	damages	and	civil	penalties.	Plaintiff	filed	an	amended complaint	on	December	28,	2011,	naming

GS&Co.	 and	 GSMC,	 among	 others,	 as	 additional	 defendants	 and	 a	 second amended	complaint	on	February	8,	2012.	On	March	12,	2012,	the	action	was removed	to	the	U.S.	District	Court	for	the	Northern	District	of	Illinois,	and	on September	17,	2012	the	district	court	granted	the	plaintiff's	motion	to	remand	the action	to	state	court.	On	November	16,	2012,	the	defendants	moved	to	dismiss and	to	stay	discovery.

Group	Inc.,	Litton	and	Ocwen	are	defendants	in	a	putative	class	action	filed	on January	23,	2013	in	the	U.S.	District	Court	for	the	Southern	District	of	New York	generally	challenging	the	procurement	manner	and	scope	of	"force-placed" hazard	 insurance	 arranged	 by	 Litton	 when	 homeowners	 failed	 to	 arrange	 for insurance	 as	 required	 by	 their	 mortgages.	 The	 complaint	 asserts	 claims	 for breach	 of	 contract,	 breach	 of	 fiduciary	 duty,	 misappropriation,	 conversion, unjust	 enrichment	 and	 violation	 of	 Florida	 unfair	 practices	 law,	 and	 seeks unspecified	 compensatory	 and	 punitive	 damages	 as	 well	 as	 declaratory	 and injunctive	relief.

The	firm	has	also	received,	and	continues	to	receive,	requests	for	information and/or	subpoenas	from	federal,	state	and	local	regulators	and	law	enforcement authorities,	 relating	 to	 the	 mortgage-related	 securitization	 process,	 subprime mortgages,	CDOs,	synthetic	mortgage-related	products,	particular	 transactions involving	 these	 products,	 and	 servicing	 and	 foreclosure	 activities,	 and	 is cooperating	with	these	regulators	and	other	authorities,	including	in	some	cases agreeing	to	the	tolling	of	the	relevant	statute	of	limitations.	See	also	"Financial Crisis-Related	Matters"	below.

The	firm	expects	to	be	the	subject	of	additional	putative	shareholder	derivative actions,	 purported	 class	 actions,	 rescission	 and	 "put	 back"	 claims	 and	 other litigation,	 additional	 investor	 and	 shareholder	 demands,	 and	 additional regulatory	and	other	investigations	and	actions	with	respect	to	mortgage-related offerings,	 loan	 sales,	 CDOs,	 and	 servicing	 and	 foreclosure	 activities.	 See Note	18	for	further	information	regarding	mortgage-related	contingencies.

# Private	Equity-Sponsored	Acquisitions	Litigation.	Group	Inc.	and	"GS

Capital	 Partners"	 are	 among	 numerous	 private	 equity	 firms	 and	 investment banks	named	as	defendants	in	a	federal	antitrust	action	filed	in	the	U.S.	District Court	for	 the	District	of	Massachusetts	 in	December	2007.	As	amended,	 the complaint	 generally	 alleges	 that	 the	 defendants	 have	 colluded	 to	 limit competition	 in	 bidding	 for	 private	 equity-sponsored	 acquisitions	 of	 public companies,	 thereby	resulting	 in	 lower	prevailing	bids	and,	by	extension,	 less consideration	for	shareholders	of	those	companies	in	violation	of	Section	1	of	the U.S.	Sherman	Antitrust	Act	and	common	law.	The	complaint	seeks,	among	other things,	treble	damages	in	an	unspecified	amount.	Defendants	moved	to	dismiss on	 August	 27,	 2008.	 The	 district	 court	 dismissed	 claims	 relating	 to	 certain transactions	 that	 were	 the	 subject	 of	 releases	 as	 part	 of	 the	 settlement	 of shareholder	 actions	 challenging	 such	 transactions,	 and	 by	 an	 order	 dated December	15,	2008	otherwise	denied	the	motion	to	dismiss.	On	April	26,	2010, the	 plaintiffs	 moved	 for	 leave	 to	 proceed	 with	 a	 second	 phase	 of	 discovery encompassing	additional	transactions.	On	August	18,	2010,	the	court	permitted discovery	 on	 eight	 additional	 transactions,	 and	 the	 plaintiffs	 filed	 a	 fourth amended	complaint	on	October	7,	2010.	On	January	13,	2011,	the	court	granted defendants'	motion	to	dismiss	certain	aspects	of	the	fourth	amended	complaint. On	March	1,	2011,	 the	court	granted	 the	motion	filed	by	certain	defendants, including	Group	Inc.,	to	dismiss	another	claim	of	the	fourth	amended	complaint on	the	grounds	that	the	transaction	was	the	subject	of	a	release	as	part	of	the settlement	of	a	shareholder	action	challenging	the	transaction.	On	June	14,	2012, the	 plaintiffs	 filed	 a	 fifth	 amended	 complaint	 encompassing	 additional transactions.	On	July	18,	2012,	the	court	granted	defendants'	motion	to	dismiss certain	newly	asserted	claims	on	the	grounds	that	certain	transactions	are	subject to	 releases	 as	 part	 of	 settlements	 of	 shareholder	 actions	 challenging	 those transactions,	and	denied	defendants'	motion	to	dismiss	certain	additional	claims as	 time-barred.	 On	 July 23, 2012,	 the	 defendants	 filed	 motions	 for summary	judgment.

IndyMac Pass-Through Certificates Litigation. GS&Co.	 is	 among numerous	underwriters	named	as	defendants	in	a	putative	securities	class	action filed	on	May	14,	2009	in	the	U.S.	District	Court	for	the	Southern	District	of	New York.	As	to	the	underwriters,	plaintiffs	allege	that	the	offering	documents	in connection	with	various	securitizations	of	mortgage-related	assets	violated	the disclosure	requirements	of	the	federal	securities	laws.	The	defendants	include IndyMac-related	 entities	 formed	 in	 connection	 with	 the	 securitizations,	 the underwriters	of	the	offerings,	certain	ratings	agencies	which	evaluated	the	credit quality	of	the	securities,	and	certain	former	officers	and	directors	of	IndyMac affiliates.	 On	 November 2, 2009,	 the	 underwriters	 moved	 to	 dismiss	 the complaint.	The	motion	was	granted	in	part	on	February	17,	2010	to	the	extent	of dismissing	claims	based	on	offerings	in	which	no	plaintiff	purchased,	and	the court	reserved	judgment	as	to	the	other	aspects	of	the	motion.	By	a	decision dated	June	21,	2010,	the	district	court	formally	dismissed	all	claims	relating	to offerings	 in	 which	 no	 named	 plaintiff	 purchased	 certificates	 (including	 all offerings	underwritten	by	GS&Co.),	and	both	granted	and	denied	the	defendants' motions	to	dismiss	in	various	other	respects.	On	November	16,	2012	the	district court	denied	the	plaintiffs'	motion	seeking	reinstatement	of	claims	relating	to	42 offerings	 previously	 dismissed	 for	 lack	 of	 standing	 (one	 of	 which	 was	 co- underwritten	 by	 GS&Co.)	 without	 prejudice	 to	 renewal	 depending	 on	 the outcome	of	the	petition	for	a	writ	of	certiorari	to	the	U.S.	Supreme	Court	with respect	to	the	Second	Circuit's	decision	described	above.	On	May	17,	2010,	four additional	investors	filed	a	motion	seeking	to	intervene	in	order	to	assert	claims based	 on	 additional	 offerings	 (including	 two	 underwritten	 by	 GS&Co.).	 The defendants	 opposed	 the	 motion	 on	 the	 ground	 that	 the	 putative	 intervenors' claims	were	time-barred	and,	on	June	21,	2011,	the	court	denied	the	motion	to intervene	 with	 respect	 to,	 among	 others,	 the	 claims	 based	 on	 the	 offerings underwritten	by	GS&Co.	Certain	of	 the	putative	 intervenors	(including	 those seeking	to	assert	claims	based	on	two	offerings	underwritten	by	GS&Co.)	have appealed.	GS&Co.	underwrote	approximately	$751	million	principal	amount	of securities	 to	all	purchasers	 in	 the	offerings	at	 issue	 in	 the	May	2010	motion to	intervene.

On	July	11,	2008,	IndyMac	Bank	was	placed	under	an	FDIC	receivership,	and on	July	31,	2008,	IndyMac	Bancorp,	Inc.	filed	for	Chapter	7	bankruptcy	in	the U.S.	Bankruptcy	Court	in	Los	Angeles,	California.

RALI	Pass-Through	Certificates	Litigation.	GS&Co.	is	among	numerous underwriters	named	as	defendants	in	a	putative	securities	class	action	initially filed	 in	 September	 2008	 in	 New	 York	 Supreme	 Court,	 and	 subsequently removed	to	the	U.S.	District	Court	for	the	Southern	District	of	New	York.	As	to the	underwriters,	plaintiffs	allege	that	the	offering	documents	in	connection	with various	 offerings	 of	 mortgage-backed	 pass-through	 certificates	 violated	 the disclosure	 requirements	 of	 the	 federal	 securities	 laws.	 In	 addition	 to	 the underwriters,	 the	 defendants	 include	 Residential	 Capital,	 LLC	 (ResCap), Residential	 Accredit	 Loans,	 Inc.	 (RALI),	 Residential	 Funding	 Corporation (RFC),	Residential	Funding	Securities	Corporation	(RFSC),	and	certain	of	their officers	and	directors.	On	March	31,	2010,	the	defendants'	motion	to	dismiss was	granted	in	part	and	denied	in	part	by	the	district	court,	resulting	in	dismissal on	the	basis	of	standing	of	all	claims	relating	to	offerings	in	which	no	plaintiff purchased	securities	and,	by	an	order	dated	January	3,	2013,	the	district	court denied,	 without	 prejudice,	 plaintiffs'	 motion	 for	 reconsideration.	 In	 June	 and July	2010,	the	lead	plaintiff	and	five	additional	investors	moved	to	intervene	in order	to	assert	claims	based	on	additional	offerings	(including	two	underwritten by	GS&Co.).	On	April	28,	2011,	the	court	granted	defendants'	motion	to	dismiss as	 to	 certain	 of	 these	 claims	 (including	 those	 relating	 to	 one	 offering underwritten	 by	 GS&Co.	 based	 on	 a	 release	 in	 an	 unrelated	 settlement),	 but otherwise	 permitted	 the	 intervenor	 case	 to	 proceed.	 By	 an	 order	 dated January	3,	2013,	 the	district	court	denied	 the	defendants'	motions	 to	dismiss certain	of	the	intervenors'	remaining	claims	as	time	barred.	Class	certification	of the	claims	based	on	the	pre-intervention	offerings	was	initially	denied	by	the district	court,	and	that	denial	was	upheld	on	appeal;	however,	following	remand, on	October	15,	2012,	the	district	court	certified	a	class	in	connection	with	the pre-intervention	offerings.	On	November	5,	2012,	the	defendants	filed	a	petition seeking	leave	from	the	U.S.	Court	of	Appeals	to	appeal	the	certification	order. By	 an	 order	 dated	 January	 3,	 2013,	 the	 district	 court	 granted	 the	 plaintiffs' application	 to	 modify	 the	 class	 definition	 to	 include	 initial	 purchasers	 who bought	the	securities	directly	from	the	underwriters	or	their	agents	no	later	than ten	trading	days	after	the	offering	date	(rather	than	just	on	the	offering	date).	On January	 18,	 2013,	 the	 defendants	 filed	 a	 supplemental	 petition	 seeking	 leave from	 the	 U.S.	 Court	 of	 Appeals	 to	 appeal	 the	 order	 modifying	 the class	definition.

GS&Co.	underwrote	approximately	$1.28	billion	principal	amount	of	securities to	all	purchasers	in	the	offerings	for	which	claims	have	not	been	dismissed.	On May	14,	2012,	ResCap,	RALI	and	RFC	filed	for	Chapter	11	bankruptcy	in	the U.S.	Bankruptcy	Court	for	the	Southern	District	of	New	York	and	the	action	has been	 stayed	 with	 respect	 to	 them,	 RFSC	 and	 certain	 of	 their	 officers	 and directors.

MF	Global	Securities	Litigation.	GS&Co.	is	among	numerous	underwriters named	as	defendants	in	class	action	complaints	filed	in	the	U.S.	District	Court for	the	Southern	District	of	New	York	commencing	November	18,	2011.	These complaints	generally	allege	that	the	offering	materials	for	two	offerings	of	MF Global	Holdings	Ltd.	convertible	notes	(aggregating	approximately	$575	million in	principal	amount)	in	February	2011	and	July	2011,	among	other	things,	failed to	describe	adequately	the	nature,	scope	and	risks	of	MF	Global's	exposure	to European	 sovereign	 debt,	 in	 violation	 of	 the	 disclosure	 requirements	 of	 the federal	securities	laws.	On	August	20,	2012,	the	plaintiffs	filed	a	consolidated amended	complaint	and	on	October	19,	2012,	the	defendants	filed	motions	to dismiss	 the	 amended	 complaint.	 GS&Co.	 underwrote	 an	 aggregate	 principal amount	of	approximately	$214	million	of	the	notes.	On	October	31,	2011,	MF Global	Holdings	Ltd.	filed	for	Chapter	11	bankruptcy	in	the	U.S.	Bankruptcy Court	in	Manhattan,	New	York.

GS&Co.	has	also	received	inquiries	from	various	governmental	and	regulatory bodies	and	self-regulatory	organizations	concerning	certain	transactions	with	MF Global	 prior	 to	 its	 bankruptcy	 filing.	 Goldman	 Sachs	 is	 cooperating	 with	 all such	inquiries.

Employment-Related	 Matters.	 On	 September	 15,	 2010,	 a	 putative	 class action	was	filed	in	the	U.S.	District	for	the	Southern	District	of	New	York	by three	 former	 female	 employees	 alleging	 that	 Group	 Inc.	 and	 GS&Co.	 have systematically	 discriminated	 against	 female	 employees	 in	 respect	 of compensation,	promotion,	assignments,	mentoring	and	performance	evaluations. The	complaint	alleges	a	class	consisting	of	all	female	employees	employed	at specified	levels	by	Group	Inc.	and	GS&Co.	since	July	2002,	and	asserts	claims under	federal	and	New	York	City	discrimination	laws.	The	complaint	seeks	class action	 status,	 injunctive	 relief	 and	 unspecified	 amounts	 of	 compensatory, punitive	and	other	damages.	Group	Inc.	and	GS&Co.	filed	a	motion	to	stay	the claims	of	one	of	the	named	plaintiffs	and	to	compel	individual	arbitration	with that	individual,	based	on	an	arbitration	provision	contained	in	an	employment agreement	 between	 Group	 Inc.	 and	 the	 individual.	 On	 April	 28,	 2011,	 the magistrate	 judge	 to	 whom	 the	 district	 judge	 assigned	 the	 motion	 denied	 the motion,	 and	 the	 district	 court	 affirmed	 the	 magistrate	 judge's	 decision	 on November	15,	2011.	Group	Inc.	and	GS&Co.	have	appealed	that	decision	to	the U.S.	Court	of	Appeals	for	the	Second	Circuit.	On	June	13,	2011,	Group	Inc.	and GS&Co.	moved	to	strike	the	class	allegations	of	one	of	the	three	named	plaintiffs based	on	her	failure	to	exhaust	administrative	remedies.	On	September	29,	2011, the	 magistrate	 judge	 recommended	 denial	 of	 the	 motion	 to	 strike	 and,	 on January	10,	2012,	the	district	court	denied	the	motion	to	strike.	On	July	22,	2011, Group	Inc.	and	GS&Co.	moved	to	strike	all	of	the	plaintiffs'	class	allegations, and	for	partial	summary	judgment	as	to	plaintiffs'	disparate	impact	claims.	By	a decision	 dated	 January 19, 2012,	 the	 magistrate	 judge	 recommended	 that defendants'	motion	be	denied	as	premature.	The	defendants	filed	objections	to that	recommendation	with	the	district	judge	and	on	July	17,	2012,	the	district court	issued	a	decision	granting	in	part	Group	Inc.'s	and	GS&Co.'s	motion	to strike	plaintiffs'	class	allegations	on	the	ground	that	plaintiffs	lacked	standing	to pursue	 certain	 equitable	 remedies	 and	 denying	 in	 part	 Group	 Inc.'s	 and GS&Co.'s	 motion	 to	 strike	 plaintiffs'	 class	 allegations	 in	 their	 entirety as	premature.

Investment	Management	Services.	Group	Inc.	and	certain	of	its	affiliates are	 parties	 to	 various	 civil	 litigation	 and	 arbitration	 proceedings	 and	 other disputes	with	clients	relating	to	losses	allegedly	sustained	as	a	result	of	the	firm's investment	 management	 services.	 These	 claims	 generally	 seek,	 among	 other things,	restitution	or	other	compensatory	damages	and,	in	some	cases,	punitive damages.	In	addition,	Group	Inc.	and	its	affiliates	are	subject	from	time	to	time to	investigations	and	reviews	by	various	governmental	and	regulatory	bodies	and self-regulatory	 organizations	 in	 connection	 with	 the	 firm's	 investment management	services.	Goldman	Sachs	is	cooperating	with	all	such	investigations and	reviews.

Goldman	Sachs	Asset	Management	International	(GSAMI)	is	the	defendant	in an	action	filed	on	July	9,	2012	with	the	High	Court	of	Justice	in	London	by certain	 entities	 representing	 Vervoer,	 a	 Dutch	 pension	 fund,	 alleging	 that GSAMI	 was	 negligent	 in	 performing	 its	 duties	 as	 investment	 manager	 in connection	with	the	allocation	of	the	plaintiffs'	funds	among	asset	managers	in accordance	 with	 asset	 allocations	 provided	 by	 plaintiffs	 and	 that	 GSAMI breached	its	contractual	and	common	law	duties	to	the	plaintiffs.	Specifically, plaintiffs	allege	 that	GSAMI	caused	 their	assets	 to	be	 invested	 in	unsuitable products	for	an	extended	period,	thereby	causing	in	excess	of	€67	million	in losses,	and	caused	them	to	be	under-exposed	for	a	period	of	time	to	certain	other investments	that	performed	well,	thereby	resulting	in	foregone	potential	gains. The	plaintiffs	are	seeking	unspecified	monetary	damages.	On	November	2,	2012, GSAMI	served	its	defense	to	the	allegations	and	on	December	21,	2012,	the plaintiffs	served	their	reply	to	the	defense.

Financial	Advisory	Services.	 Group	 Inc.	 and	 certain	 of its	 affiliates	 are parties	to	various	civil	litigation	and	arbitration	proceedings	and	other	disputes with	clients	and	third	parties	relating	to	the	firm's	financial	advisory	activities. These	claims	generally	seek,	among	other	things,	compensatory	damages	and,	in some	cases,	punitive	damages,	and	in	certain	cases	allege	that	the	firm	did	not appropriately	disclose	or	deal	with	conflicts	of	interest.	In	addition,	Group	Inc. and	its	affiliates	are	subject	from	time	to	time	to	investigations	and	reviews	by various	governmental	and	regulatory	bodies	and	self-regulatory	organizations	in connection	with	conflicts	of	interest.	Goldman	Sachs	is	cooperating	with	all	such investigations	and	reviews.

Group	Inc.,	GS&Co.	and	The	Goldman,	Sachs	&	Co.	L.L.C.	are	defendants	in	an action	 brought	 by	 the	 founders	 and	 former	 majority	 shareholders	 of	 Dragon Systems,	 Inc.	 (Dragon)	 on	 November	 18,	 2008,	 alleging	 that	 the	 plaintiffs incurred	 losses	 due	 to	 GS&Co.'s	 financial	 advisory	 services	 provided	 in connection	with	the	plaintiffs'	exchange	of	their	purported	$300	million	interest in	Dragon	for	stock	of	Lernout	&	Hauspie	Speech	Products,	N.V.	(L&H)	 in 2000.	L&H	filed	for	Chapter	11	bankruptcy	in	the	U.S.	Bankruptcy	Court	in Wilmington,	 Delaware	 on	 November	 29,	 2000.	The	 action	 is	 pending	 in	 the United	States	District	Court	for	the	District	of	Massachusetts.	The	complaint, which	was	amended	in	November	2011	following	the	2009	dismissal	of	certain of	 the	plaintiffs'	 initial	claims,	seeks	unspecified	compensatory,	punitive	and other	damages,	and	alleges	breach	of	fiduciary	duty,	violation	of	Massachusetts unfair trade practices laws, negligence, negligent and intentional misrepresentation,	gross	negligence,	willful	misconduct	and	bad	faith.	Former minority	shareholders	of	Dragon	have	brought	a	similar	action	against	GS&Co. with	respect	to	their	purported	$49	million	interest	in	Dragon,	and	this	action	has been	 consolidated	 with	 the	 action	 described	 above.	 All	 parties	 moved	 for summary	 judgment.	 By	 an	 order	 dated	 October	 31,	 2012,	 the	 court	 granted summary	judgment	with	respect	to	certain	counterclaims	and	an	indemnification claim	brought	by	the	Goldman	Sachs	defendants	against	one	of	the	shareholders, but	 denied	 summary	 judgment	 with	 respect	 to	 all	 other	 claims.	 On January	23,	2013,	a	jury	found	in	favor	of	the	Goldman	Sachs	defendants	on	the plaintiffs'	 claims	 for	 negligence,	 negligent	 and	 intentional	 misrepresentation, gross	 negligence,	 and	 breach	 of	 fiduciary	 duty.	 The	 plaintiffs'	 claims	 for violation	of	Massachusetts	unfair	trade	practices	laws	will	be	addressed	by	the district	court	and	have	not	yet	been	decided.

Sales,	Trading	and	Clearance	Practices. 	Group	Inc.	and	certain	of	 its affiliates	are	subject	to	a	number	of	investigations	and	reviews,	certain	of	which are	 industry-wide,	 by	 various	 governmental	 and	 regulatory	 bodies	 and	 self- regulatory	organizations	relating	to	the	sales,	trading	and	clearance	of	corporate and	government	securities	and	other	financial	products,	including	compliance with	 the	 SEC's	 short	 sale	 rule,	 algorithmic	 and	 quantitative	 trading,	 futures trading,	transaction	reporting,	securities	lending	practices,	trading	and	clearance of	 credit	 derivative	 instruments,	 commodities	 trading,	 private	 placement practices	and	compliance	with	the	U.S.	Foreign	Corrupt	Practices	Act.

The	 European	 Commission	 announced	 in	 April	 2011	 that	 it	 was	 initiating proceedings	 to	 investigate	 further	 numerous	 financial	 services	 companies, including	Group	Inc.,	 in	connection	with	 the	supply	of	data	related	 to	credit default	swaps	and	in	connection	with	profit	sharing	and	fee	arrangements	for clearing	of	credit	default	swaps,	including	potential	anti-competitive	practices. The	proceedings	in	connection	with	the	supply	of	data	related	to	credit	default swaps	are	ongoing.	Group	Inc.'s	current	understanding	is	that	the	proceedings related	to	profit	sharing	and	fee	arrangements	for	clearing	of	credit	default	swaps have	 been	 suspended	 indefinitely.	 The	 firm	 has	 received	 civil	 investigative demands	from	the	U.S.	Department	of	Justice	(DOJ)	for	information	on	similar matters.	Goldman	Sachs	is	cooperating	with	the	investigations	and	reviews.

Insider	 Trading Investigations. From	 time	 to	 time,	 the	 firm	 and	 its employees	are	the	subject	of	or	otherwise	involved	in	regulatory	investigations relating	to	insider	trading,	the	potential	misuse	of	material	nonpublic	information and	 the	 effectiveness	 of	 the	 firm's	 insider	 trading	 controls	 and	 information barriers.	It	is	the	firm's	practice	to	cooperate	fully	with	any	such	investigations.

Research	Investigations.	From	time	to	time,	the	firm	is	the	subject	of	or otherwise	 involved	 in	 regulatory	 investigations	 relating	 to	 research	 practices, including	research	independence	and	interactions	between	research	analysts	and other	firm	personnel,	including	investment	banking	personnel.	It	is	the	firm's practice	to	cooperate	fully	with	any	such	investigations.

EU	Price-Fixing	Matter.	On	July	5,	2011,	the	European	Commission	issued	a Statement	of	Objections	to	Group	Inc.	raising	allegations	of	an	industry-wide conspiracy	to	fix	prices	for	power	cables,	including	by	an	Italian	cable	company in	 which	 certain	 Goldman	 Sachs-affiliated	 investment	 funds	 held	 ownership interests	 from	 2005	 to	 2009.	 The	 Statement	 of	 Objections	 proposes	 to	 hold Group	Inc.	jointly	and	severally	liable	for	some	or	all	of	any	fine	levied	against the	cable	company	under	the	concept	of	parental	liability	under	EU	competition law.

Municipal	Securities	Matters.	Group	Inc.	and	certain	of its	affiliates	are subject	to	a	number	of	investigations	and	reviews	by	various	governmental	and regulatory	 bodies	 and	 self-regulatory	 organizations	 relating	 to	 transactions involving	municipal	securities,	including	wall-cross	procedures	and	conflict	of interest	disclosure	with	respect	to	state	and	municipal	clients,	the	trading	and structuring	 of	 municipal	 derivative	 instruments	 in	 connection	 with	 municipal offerings,	political	contribution	rules,	underwriting	of	Build	America	Bonds	and the	 possible	 impact	 of	 credit	 default	 swap	 transactions	 on	 municipal	 issuers. Goldman	Sachs	is	cooperating	with	the	investigations	and	reviews.

Group	 Inc.,	 Goldman	 Sachs	 Mitsui	 Marine	 Derivative	 Products,	 L.P. (GSMMDP)	and	GS	Bank	USA	are	among	numerous	financial	services	firms that	 have	 been	 named	 as	 defendants	 in	 numerous	 substantially	 identical individual	 antitrust	 actions	 filed	 beginning	 on	 November	 12,	 2009	 that	 have been	 coordinated	 with	 related	 antitrust	 class	 action	 litigation	 and	 individual actions,	in	which	no	Goldman	Sachs	affiliate	is	named,	for	pre-trial	proceedings in	the	U.S.	District	Court	for	the	Southern	District	of	New	York.	The	plaintiffs include	individual	California	municipal	entities	and	three	New	York	non-profit entities.	All	of	these	complaints	against	Group	Inc.,	GSMMDP	and	GS	Bank USA	generally	allege	that	the	Goldman	Sachs	defendants

participated	in	a	conspiracy	to	arrange	bids,	fix	prices	and	divide	up	the	market for	derivatives	used	by	municipalities	in	refinancing	and	hedging	transactions from	1992	to	2008.	The	complaints	assert	claims	under	the	federal	antitrust	laws and	either	California's	Cartwright	Act	or	New	York's	Donnelly	Act,	and	seek, among	other	things,	treble	damages	under	the	antitrust	laws	in	an	unspecified amount	and	injunctive	relief.	On	April	26,	2010,	the	Goldman	Sachs	defendants' motion	to	dismiss	complaints	filed	by	several	individual	California	municipal plaintiffs	was	denied.	On	August	19,	2011,	Group	Inc.,	GSMMDP	and	GS	Bank USA	were	voluntarily	dismissed	without	prejudice	from	all	actions	except	one brought	by	a	California	municipal	entity.

On	August	21,	2008,	GS&Co.	entered	into	a	settlement	in	principle	with	the Office	 of	 the	 Attorney	 General	 of	 the	 State	 of	 New	 York	 and	 the	 Illinois Securities	 Department	 (on	 behalf	 of	 the	 North	 American	 Securities Administrators	 Association)	 regarding	 auction	 rate	 securities.	 Under	 the agreement,	Goldman	Sachs	agreed,	among	other	things,	(i)	to	offer	to	repurchase at	par	the	outstanding	auction	rate	securities	that	its	private	wealth	management clients	purchased	through	the	firm	prior	to	February	11,	2008,	with	the	exception of	those	auction	rate	securities	where	auctions	were	clearing,	(ii)	to	continue	to work	 with	 issuers	 and	 other	 interested	 parties,	 including	 regulatory	 and governmental	 entities,	 to	 expeditiously	 provide	 liquidity	 solutions	 for institutional	investors,	and	(iii)	to	pay	a	$22.5	million	fine.	The	settlement	is subject	 to	 approval	 by	 the	 various	 states.	 GS&Co.	 has	 entered	 into	 consent orders	with	New	York,	Illinois	and	most	other	states	and	is	in	the	process	of doing	so	with	the	remaining	states.

On	September	4,	2008,	Group	Inc.	was	named	as	a	defendant,	 together	with numerous	 other	 financial	 services	 firms,	 in	 two	 complaints	 filed	 in	 the	 U.S. District	Court	for	the	Southern	District	of	New	York	alleging	that	the	defendants engaged	in	a	conspiracy	to	manipulate	the	auction	securities	market	in	violation of	 federal	 antitrust	 laws.	 The	 actions	 were	 filed,	 respectively,	 on	 behalf	 of putative	classes	of	issuers	of	and	investors	in	auction	rate	securities	and	seek, among	 other	 things,	 treble	 damages	 in	 an	 unspecified	 amount.	 Defendants' motion	 to	dismiss	was	granted	on	January	26,	2010.	On	March	1,	2010,	 the plaintiffs	appealed	from	the	dismissal	of	their	complaints.

Beginning	in	February	2012,	GS&Co.	was	named	as	respondent	in	four	FINRA arbitrations	 filed,	 respectively,	 by	 the	 cities	 of	 Houston,	 Texas	 and	 Reno, Nevada,	 a	 California	 school	 district	 and	 a	 North	 Carolina	 municipal	 power authority,	 based	 on	 GS&Co.'s	 role	 as	 underwriter	 and	 broker-dealer	 of	 the claimants'	 issuances	 of	 an	 aggregate	 of	 over $1.8 billion	 of	 auction	 rate securities	 from	 2003	 through	 2007	 (in	 the	 Houston	 arbitration,	 two	 other financial	services	firms	were	named	as	respondents,	and	in	the	North	Carolina arbitration,	one	other	financial	services	firm	was	named).	Each	claimant	alleges that	GS&Co.	failed	to	disclose	that	it	had	a	practice	of	placing	cover	bids	on auctions,	and	failed	to	offer	the	claimant	the	option	of	a	formulaic	maximum	rate (rather	than	a	fixed	maximum	rate),	and	that,	as	a	result,	the	claimant	was	forced to	engage	in	a	series	of	expensive	refinancing	and	conversion	transactions	after the	failure	of	the	auction	market	(at	an	estimated	cost,	in	the	case	of	Houston,	of approximately	$90	million).	Houston	and	Reno	also	allege	that	GS&Co.	advised them	 to	 enter	 into	 interest	 rate	 swaps	 in	 connection	 with	 their	 auction	 rate securities	issuances,	causing	them	to	incur	additional	losses	(including,	in	the case	of	Reno,	a	swap	termination	obligation	of	over	$8	million).	The	claimants assert	 claims	 for	 breach	 of	 fiduciary	 duty,	 fraudulent	 concealment,	 negligent misrepresentation,	breach	of	contract,	violations	of	the	Exchange	Act	and	state securities	laws,	and	breach	of	duties	under	the	rules	of	the	Municipal	Securities Rulemaking	Board	and	the	NASD,	and	seek	unspecified	damages.	GS&Co.	has moved	 in	 federal	 court	 to	 enjoin	 the	 Reno	 and	 California	 school	 district arbitrations	pursuant	to	an	exclusive	forum	selection	clause	in	the	transaction documents.	On	November	26,	2012,	this	motion	was	denied	with	regard	to	the Reno	arbitration	and,	on	February	8,	2013,	this	motion	was	granted	with	regard to	the	California	school	district	arbitration.

Financial	Crisis-Related	Matters.	Group	Inc.	and	certain	of	its	affiliates	are subject	to	a	number	of	investigations	and	reviews	by	various	governmental	and regulatory	bodies	and	self-regulatory	organizations	and	litigation	relating	to	the 2008	financial	crisis.	Goldman	Sachs	is	cooperating	with	the	investigations	and reviews.

# Employee	Benefit	Plans

The	firm	sponsors	various	pension	plans	and	certain	other	postretirement	benefit plans,	primarily	healthcare	and	 life	 insurance.	The	firm	also	provides	certain benefits	to	former	or	inactive	employees	prior	to	retirement.

# Defined	Benefit	Pension	Plans	and	Postretirement	Plans

Employees	of	certain	non-U.S.	subsidiaries	participate	in	various	defined	benefit pension	plans.	These	plans	generally	provide	benefits	based	on	years	of	credited service	 and	 a	 percentage	 of	 the	 employee's	 eligible	 compensation.	The	 firm maintains	 a	 defined	 benefit	 pension	 plan	 for	 certain	 U.K.	 employees.	As	 of April	2008,	the	U.K.	defined	benefit	plan	was	closed	to	new	participants,	but	will continue	to	accrue	benefits	for	existing	participants.	These	plans	do	not	have	a material	impact	on	the	firm's	consolidated	results	of	operations.

The	firm	also	maintains	a	defined	benefit	pension	plan	for	substantially	all	U.S. employees	hired	prior	to	November	1,	2003.	As	of	November	2004,	this	plan was	closed	to	new	participants	and	frozen	such	that	existing	participants	would not	 accrue	 any	 additional	 benefits.	 In	 addition,	 the	 firm	 maintains	 unfunded postretirement	benefit	plans	that	provide	medical	and	life	insurance	for	eligible retirees	and	their	dependents	covered	under	these	programs.	These	plans	do	not have	a	material	impact	on	the	firm's	consolidated	results	of	operations.

The	 firm	 recognizes	 the	 funded	 status	 of	 its	 defined	 benefit	 pension	 and postretirement	plans,	measured	as	the	difference	between	the	fair	value	of	the plan	assets	and	the	benefit	obligation,	in	the	consolidated	statements	of	financial condition.	 As	 of	 December	 2012,	 "Other	 assets"	 and	 "Other	 liabilities	 and accrued	expenses"	included	$225	million	(related	to	an	overfunded	pension	plan) and	$645	million,	respectively,	related	to	these	plans.	As	of	December	2011, "Other	 assets"	 and	 "Other	 liabilities	 and	 accrued	 expenses"	 included $135	 million (related	 to	 an	 overfunded	 pension	 plan)	 and	 $858	 million, respectively,	related	to	these	plans.

# Defined	Contribution	Plans

The	 firm	 contributes	 to	 employer-sponsored	 U.S.	 and	 non-U.S.	 defined contribution	 plans.	 The	 firm's	 contribution	 to	 these	 plans	 was	 $221	 million, $225 million	 and $193 million	 for	 the	 years	 ended	 December	 2012, December	2011	and	December	2010,	respectively.

# Employee	Incentive	Plans

The	cost	of	employee	services	received	in	exchange	for	a	share-based	award	is generally	measured	based	on	the	grant-date	fair	value	of	the	award.	Share-based awards	that	do	not	require	future	service	(i.e.,	vested	awards,	including	awards granted	 to	 retirement-eligible	 employees)	 are	 expensed	 immediately.	 Share- based	awards	that	require	future	service	are	amortized	over	the	relevant	service period.	Expected	forfeitures	are	included	in	determining	share-based	employee compensation	expense.

The	 firm	 pays	 cash	 dividend	 equivalents	 on	 outstanding	 RSUs.	 Dividend equivalents	paid	on	RSUs	are	generally	charged	to	retained	earnings.	Dividend equivalents	paid	on	RSUs	expected	to	be	forfeited	are	included	in	compensation expense.	The	firm	accounts	for	the	tax	benefit	related	to	dividend	equivalents paid	on	RSUs	as	an	increase	to	additional	paid-in	capital.

In	certain	cases,	primarily	related	to	conflicted	employment	(as	outlined	in	the applicable	 award	 agreements),	 the	 firm	 may	 cash	 settle	 share-based compensation	 awards	 accounted	 for	 as	 equity	 instruments.	 For	 these	 awards, whose	terms	allow	for	cash	settlement,	additional	paid-in	capital	is	adjusted	to the	extent	of	the	difference	between	the	value	of	the	award	at	the	time	of	cash settlement	and	the	grant-date	value	of	the	award.

# Stock	Incentive	Plan

The	firm	sponsors	a	stock	incentive	plan,	The	Goldman	Sachs	Amended	and Restated	Stock	Incentive	Plan	(SIP),	which	provides	for	grants	of	incentive	stock options,	 nonqualified	 stock	 options,	 stock	 appreciation	 rights,	 dividend equivalent	rights,	restricted	stock,	RSUs,	awards	with	performance	conditions and	 other	 share-based	 awards.	 In	 the	 second	 quarter	 of	 2003,	 the	 SIP	 was approved	by	the	firm's	shareholders,	effective	for	grants	after	April	1,	2003.	The SIP	 was	 amended	 and	 restated,	 effective	 December 31, 2008	 and	 further amended	 on	 December	 20,	 2012	 to	 extend	 its	 term	 until	 Group	 Inc.'s	 2013 Annual	Meeting	of	Shareholders,	at	which	meeting	approval	of	a	new	equity compensation	plan	will	be	voted	upon	by	shareholders.

The	total	number	of	shares	of	common	stock	that	may	be	delivered	pursuant	to awards	granted	under	the	SIP	through	the	end	of	the	2008	fiscal	year	could	not exceed	250	million	shares.	The	total	number	of	shares	of	common	stock	that may	be	delivered	for	awards	granted	under	the	SIP	in	the	2009	fiscal	year	and each	 fiscal	 year	 thereafter	 cannot	 exceed	 5%	 of	 the	 issued	 and	 outstanding shares	 of	 common	 stock,	 determined	 as	 of	 the	 last	 day	 of	 the	 immediately preceding	fiscal	year,	increased	by	the	number	of	shares	available	for	awards	in previous	 years	 but	 not	 covered	 by	 awards	 granted	 in	 such	 years.	 As	 of December	2012	and	December	2011,	188.3	million	and	161.0	million	shares, respectively,	were	available	for	grant	under	the	SIP.

# Restricted	Stock	Units

The	firm	grants	RSUs	to	employees	under	the	SIP,	primarily	in	connection	with year-end	compensation	and	acquisitions.	RSUs	are	valued	based	on	the	closing price	of	the	underlying	shares	on	the	date	of	grant	after	taking	into	account	a liquidity	discount	for	any	applicable	post-vesting	transfer	restrictions.	Year-end RSUs	generally	vest	and	underlying	shares	of	common	stock	deliver	as	outlined in	 the	 applicable	 RSU	 agreements.	 Employee	 RSU	 agreements	 generally provide	 that	 vesting	 is	 accelerated	 in	 certain	 circumstances,	 such	 as	 on retirement,	death	and	extended	absence.	Delivery	of	the	underlying	shares	of common	stock	is	conditioned	on	the	grantees	satisfying	certain	vesting	and	other requirements	outlined	in	the	award	agreements.	The	table	below	presents	 the activity	related	to	RSUs.

|  | Restricted	Stock<br>Units	Outstanding |  | Weighted	Average<br>Grant-Date	Fair	Value	of<br>Restricted<br>Stock	Units	Outstanding |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Future | No\tFuture | Future | No\tFuture |
|  | Service | Service | Service | Service |
|  | Required | Required | Required | Required |
| Outstanding,\tDecember\t2011 | \t 14,302,189^\t4 | \t 30,840,580 | $139.46 | $124.33 |
| Granted^\t1,\t2 | 6,967,886 | 4,246,015 | 84.59 | 84.92 |
| Forfeited | (1,228,200) | (68,350) | 126.97 | 122.40 |
| Delivered\t^3 | — | \t(30,980,248) | — | 120.35 |
| Vested\t^2 | \t(11,352,354) | \t 11,352,354 | 125.03 | 125.03 |
| Outstanding,\tDecember\t2012 | 8,689,521^\t4 | \t 15,390,351 | 116.07 | 121.99 |

1.The	weighted	average	grant-date	fair	value	of	RSUs	granted	during	the	years	ended	December	2012,	December	2011	and	December	2010	was	$84.72,	$141.21	and	$132.64,	respectively.	The	fair value	of	the	RSUs	granted	during	the	year	ended	December	2012,	December	2011	and	December	2010	includes	a	liquidity	discount	of	21.7%,	12.7%	and	13.2%,	respectively,	to	reflect	post-vesting transfer	restrictions	of	up	to	4	years.

2.The	aggregate	fair	value	of	awards	that	vested	during	the	years	ended	December	2012,	December	2011	and	December	2010	was	$1.57	billion,	$2.40	billion	and	$4.07	billion,	respectively.

3.Includes	RSUs	that	were	cash	settled.

4.Includes	restricted	stock	subject	to	future	service	requirements	as	of	December	2012	and	December	2011	of	276,317	and	754,482	shares,	respectively.

In	the	first	quarter	of	2013,	the	firm	granted	to	its	employees	16.7	million	year- end	RSUs,	of	which	5.7	million	RSUs	require	future	service	as	a	condition	of delivery.	These	awards	are	subject	to	additional	conditions	as	outlined	in	the award	agreements.	Generally,	shares	underlying	these	awards,	net	of	required withholding	tax,	deliver	over	a	three-year	period	but	are	subject	to	post-vesting transfer	restrictions	through	January	2018.	These	grants	are	not	included	in	the above	table.

# Stock	Options

Stock	 options	 generally	 vest	 as	 outlined	 in	 the	 applicable	 stock	 option agreement.	Options	granted	in	February	2010	generally	became	exercisable	in one-third	installments	in	January	2011,	January	2012	and	January	2013	and	will expire	 in	 February	 2014.	 In	 general,	 options	 granted	 prior	 to	 February	 2010 expire	on	the	tenth	anniversary	of	the	grant	date,	although	they	may	be	subject	to earlier	 termination	 or	 cancellation	 under	 certain	 circumstances	 in	 accordance with	the	terms	of	the	SIP	and	the	applicable	stock	option	agreement. The	table	below	presents	the	activity	related	to	stock	options.

|  |  |  | Aggregate | Weighted	Average |
| :--- | :--- | :--- | :--- | :--- |
|  | Options | Weighted\tAverage | Intrinsic\tValue | Remaining\tLife |
|  | Outstanding | Exercise\tPrice | (in\tmillions) | (years) |
| Outstanding,\tDecember\t2011 | 47,256,938 | $\t\t97.76 | $\t\t\t444 | 6.08 |
| Exercised | (4,009,948) | 78.93 |  |  |
| Forfeited | (21,600) | 113.68 |  |  |
| Expired | (8,279) | 78.87 |  |  |
| Outstanding,\tDecember\t2012 | 43,217,111 | 99.51 | 1,672 | 5.55 |
| Exercisable,\tDecember\t2012 | 43,203,775 | 99.49 | 1,672 | 5.55 |
|  |  |  | Goldman\tSachs\t2012\tForm\t10-K | 225 |

The total intrinsic value of options exercised during the years ended December 2012,	 December 2011 and	 December 2010	 was $151	 million, $143	million	and

$510	million,	respectively.	The	table	below	presents	options	outstanding.

|  |  | Weighted | Weighted	Average |
| :--- | :--- | :--- | :--- |
|  | Options | Average | Remaining |
| Exercise\tPrice | Outstanding | Exercise\tPrice | Life\t(years) |
| $\t\t75.00\t-\t$\t\t89.99 | 34,103,907 | $\t\t78.78 | 6.00 |
| \t\t\t\t90.00\t-\t\t\t104.99 | 275,580 | 96.08 | 0.92 |
| \t\t105.00\t-\t\t\t119.99 | — | — | — |
| \t\t120.00\t-\t\t\t134.99 | 2,791,500 | 131.64 | 2.92 |
| \t\t135.00\t-\t\t\t149.99 | — | — | — |
| \t\t150.00\t-\t\t\t164.99 | 65,000 | 154.16 | 1.17 |
| \t\t165.00\t-\t\t\t194.99 | — | — | — |
| \t\t195.00\t-\t\t\t209.99 | 5,981,124 | 202.27 | 4.48 |
| Outstanding,\tDecember\t2012 | 43,217,111 | 99.51 | 5.55 |

The	weighted	average	grant-date	fair	value	of	options	granted	during	the	year ended	December	2010	was	$37.58.

The tables	 below	 present the	 primary	 weighted	 average	 assumptions	 used to estimate	fair	value	as	of	the	grant	date	based	on	a	Black-Scholes	option-pricing model, and share-based compensation and the related excess tax benefit/(provision).

|  | Year	Ended	December | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
|  | 2012 | 2011 | 2010 |
| Risk-free\tinterest\trate | N/A | N/A | 1.6% |
| Expected\tvolatility | N/A | N/A | 32.5 |
| Annual\tdividend\tper\tshare | N/A | N/A | $1.40 |
| Expected\tlife | N/A | N/A | \t3.75\tyears |

|  | Year	Ended	December | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Share-based\tcompensation | $1,338 | $2,843 | $4,070 |
| Excess\ttax\tbenefit\trelated\tto\toptions\texercised | 53 | 55 | 183 |
| Excess\ttax\tbenefit/(provision)\trelated\tto\tshare-based\tawards\t^1 | (11) | 138 | 239 |

1.Represents	the	tax	benefit/(provision)	recognized	in	additional	paid-in	capital	on	stock	options	exercised	and	the	delivery	of	common	stock	underlying	share-based	awards.

As of December 2012, there was $434 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements.	This	cost	is expected	to	be	recognized	over	a	weighted	average	period	of	1.62	years.

# Parent	Company

# Group	Inc.	—	Condensed	Statements	of	Earnings

|  | Year	Ended	December | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Revenues |  |  |  |
| Dividends\tfrom\tbank\tsubsidiaries | \t $\t\t\t\t\t— | \t$\t1,000 | \t$\t\t\t\t\t\t\t\t— |
| Dividends\tfrom\tnonbank\tsubsidiaries | 3,622 | 4,967 | 6,032 |
| Undistributed\tearnings\tof\tsubsidiaries | 3,682 | 481 | 2,884 |
| Other\trevenues | 1,567 | (3,381) | 964 |
| Total\tnon-interest\trevenues | 8,871 | 3,067 | 9,880 |
| Interest\tincome | 4,751 | 4,547 | 4,153 |
| Interest\texpense | 4,287 | 3,917 | 3,429 |
| Net\tinterest\tincome | 464 | 630 | 724 |
| Net\trevenues,\tincluding\tnet\tinterest\tincome | 9,335 | 3,697 | 10,604 |
| Operating\texpenses |  |  |  |
| Compensation\tand\tbenefits | 452 | 300 | 423 |
| Other\texpenses | 448 | 252 | 238 |
| Total\toperating\texpenses | 900 | 552 | 661 |
| Pre-tax\tearnings | 8,435 | 3,145 | 9,943 |
| Provision/(benefit)\tfor\ttaxes | 960 | (1,297) | 1,589 |
| Net\tearnings | 7,475 | 4,442 | 8,354 |
| Preferred\tstock\tdividends | 183 | 1,932 | 641 |
| Net\tearnings\tapplicable\tto\tcommon\tshareholders | \t$7,292 | \t$\t2,510 | \t $\t\t7,713 |

# Group	Inc.	—	Condensed	Statements	of	Financial	Condition

|  | As	of	December |  |
| :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 |
| Assets |  |  |
| Cash\tand\tcash\tequivalents | \t$\t\t\t\t\t\t\t\t\t14 | \t$\t\t\t\t\t\t\t\t\t14 |
| Loans\tto\tand\treceivables\tfrom\tsubsidiaries |  |  |
| Bank\tsubsidiaries | 4,103 | 7,196 |
| Nonbank\tsubsidiaries\t^1 | 174,609 | 180,397 |
| Investments\tin\tsubsidiaries\tand\tother\taffiliates\nBank\tsubsidiaries | 20,671 | 19,226 |
| Nonbank\tsubsidiaries\tand\tother\taffiliates | 52,646 | 48,473 |
| Financial\tinstruments\towned,\tat\tfair\tvalue | 19,132 | 20,698 |
| Other\tassets | 4,782 | 7,912 |
| Total\tassets | \t$275,957 | \t$283,916 |
| Liabilities\tand\tshareholders'\tequity |  |  |
| Payables\tto\tsubsidiaries | \t$\t\t\t\t\t\t\t657 | \t$\t\t\t\t\t\t\t693 |
| Financial\tinstruments\tsold,\tbut\tnot\tyet\tpurchased,\tat\tfair\tvalue | 301 | 241 |
| Unsecured\tshort-term\tborrowings\nWith\tthird\tparties\t^2 | 29,898 | 35,368 |
| With\tsubsidiaries | 4,253 | 4,701 |
| Unsecured\tlong-term\tborrowings\nWith\tthird\tparties\t^3 | 158,761 | 166,342 |
| With\tsubsidiaries\t^4 | 3,574 | 1,536 |
| Other\tliabilities\tand\taccrued\texpenses | 2,797 | 4,656 |
| Total\tliabilities | 200,241 | 213,537 |
| Commitments,\tcontingencies\tand\tguarantees |  |  |
| Shareholders'\tequity |  |  |
| Preferred\tstock | 6,200 | 3,100 |
| Common\tstock | 8 | 8 |
| Restricted\tstock\tunits\tand\temployee\tstock\toptions | 3,298 | 5,681 |
| Additional\tpaid-in\tcapital | 48,030 | 45,553 |
| Retained\tearnings | 65,223 | 58,834 |
| Accumulated\tother\tcomprehensive\tloss | (193) | (516) |
| Stock\theld\tin\ttreasury,\tat\tcost | (46,850) | (42,281) |
| Total\tshareholders'\tequity | 75,716 | 70,379 |
| Total\tliabilities\tand\tshareholders'\tequity | \t$275,957 | \t$283,916 |

|  | Year	Ended	December | Year	Ended	December |  |
| :--- | :--- | :--- | :--- |
| in\tmillions | 2012 | 2011 | 2010 |
| Cash\tflows\tfrom\toperating\tactivities |  |  |  |
| Net\tearnings | \t$\t\t\t7,475 | \t$\t\t\t4,442 | \t$\t\t\t8,354 |
| Adjustments\tto\treconcile\tnet\tearnings\tto\tnet\tcash |  |  |  |
| provided\tby\toperating\tactivities |  |  |  |
| Undistributed\tearnings\tof\tsubsidiaries | (3,682) | (481) | (2,884) |
| Depreciation\tand\tamortization | 15 | 14 | 18 |
| Deferred\tincome\ttaxes | (1,258) | 809 | 214 |
| Share-based\tcompensation | 81 | 244 | 393 |
| Changes\tin\toperating\tassets\tand\tliabilities\nFinancial\tinstruments\towned,\tat\tfair\tvalue | 1,464 | 3,557 | (176) |
| Financial\tinstruments\tsold,\tbut\tnot\tyet\tpurchased,\tat\nfair\tvalue | (3) | (536) | (1,091) |
| Other,\tnet | 2,621 | 1,422 | 10,852 |
| Net\tcash\tprovided\tby\toperating\tactivities | 6,713 | 9,471 | 15,680 |
| Cash\tflows\tfrom\tinvesting\tactivities |  |  |  |
| Purchase\tof\tproperty,\tleasehold\timprovements |  |  |  |
| and\tequipment | (12) | (42) | (15) |
| Repayments\tof\tshort-term\tloans\tby\tsubsidiaries,\tnet\nof\tissuances | 6,584 | 20,319 | (9,923) |
| Issuance\tof\tterm\tloans\tto\tsubsidiaries | (17,414) | (42,902) | (5,532) |
| Repayments\tof\tterm\tloans\tby\tsubsidiaries | 18,715 | 21,850 | 1,992 |
| Capital\tdistributions\tfrom/(contributions\tto)\tsubsidiaries, |  |  |  |
| net | (298) | 4,642 | (1,038) |
| Net\tcash\tprovided\tby/(used\tfor)\tinvesting\tactivities | 7,575 | 3,867 | (14,516) |
| Cash\tflows\tfrom\tfinancing\tactivities |  |  |  |
| Unsecured\tshort-term\tborrowings,\tnet | (2,647) | (727) | 3,137 |
| Proceeds\tfrom\tissuance\tof\nlong-term\tborrowings | 26,160 | 27,251 | 21,098 |
| Repayment\tof\tlong-term\tborrowings,\tincluding\tthe\ncurrent\tportion | (35,608) | (27,865) | (21,838) |
| Preferred\tstock\trepurchased | — | (3,857) | — |
| Common\tstock\trepurchased | (4,640) | (6,048) | (4,183) |
| Dividends\tand\tdividend\tequivalents\tpaid\ton\tcommon\nstock,\tpreferred\tstock\tand\trestricted\tstock\tunits | (1,086) | (2,771) | (1,443) |
| Proceeds\tfrom\tissuance\tof\tpreferred\tstock,\tnet\tof\nissuance\tcosts | 3,087 | — | — |
| Proceeds\tfrom\tissuance\tof\tcommon\tstock,\tincluding\nstock\toption\texercises | 317 | 368 | 581 |
| Excess\ttax\tbenefit\trelated\tto\nshare-based\tcompensation | 130 | 358 | 352 |
| Cash\tsettlement\tof\tshare-based\tcompensation | (1) | (40) | (1) |
| Net\tcash\tused\tfor\tfinancing\tactivities | (14,288) | (13,331) | (2,297) |
| Net\tincrease/(decrease)\tin\tcash\tand\tcash\tequivalents | — | 7 | (1,133) |
| Cash\tand\tcash\tequivalents,\tbeginning\tof\tyear | 14 | 7 | 1,140 |
| Cash\tand\tcash\tequivalents,\tend\tof\tyear | \t$\t\t\t\t\t\t\t\t14 | \t$\t\t\t\t\t\t\t\t14 | \t$\t\t\t\t\t\t\t\t\t\t7 |

# Non-cash	activity:

During	 the	 year	 ended	 December	 2011, $103	 million of common stock	 was issued in connection	with	the	acquisition	of	GS	Australia.

1.Primarily	includes	overnight	loans,	the	proceeds	of	which	can	be	used	to	satisfy	the	short- term	obligations	of	Group	Inc.

# Supplemental	Financial	Information

# Quarterly	Results	(unaudited)

The following represents the firm's	 unaudited	 quarterly results for the	 years ended	 December 2012 and	 December 2011.	 These quarterly results	 were prepared	in	accordance	with	U.S.	GAAP	and	reflect	all	adjustments	that

are,	in	the	opinion	of	management,	necessary	for	a	fair	statement	of	the	results. These	adjustments	are	of	a	normal,	recurring	nature.

|  |  | Three	Months	Ended |  |  |
| :--- | :--- | :--- | :--- | :--- |
|  | December | September | June | March |
| in\tmillions,\texcept\tper\tshare\tdata | 2012 | 2012 | 2012 | 2012 |
| Total\tnon-interest\trevenues | $8,263 | $7,515 | \t$5,537 | \t$\t\t8,968 |
| Interest\tincome | 2,864 | 2,629 | 3,055 | 2,833 |
| Interest\texpense | 1,891 | 1,793 | 1,965 | 1,852 |
| Net\tinterest\tincome | 973 | 836 | 1,090 | 981 |
| Net\trevenues,\tincluding\tnet\tinterest\tincome | 9,236 | 8,351 | 6,627 | 9,949 |
| Operating\texpenses\t^1 | 4,923 | 6,053 | 5,212 | 6,768 |
| Pre-tax\tearnings | 4,313 | 2,298 | 1,415 | 3,181 |
| Provision\tfor\ttaxes | 1,421 | 786 | 453 | 1,072 |
| Net\tearnings | 2,892 | 1,512 | 962 | 2,109 |
| Preferred\tstock\tdividends | 59 | 54 | 35 | 35 |
| Net\tearnings\tapplicable\tto\tcommon\tshareholders | $2,833 | $1,458 | \t$\t\t\t927 | \t$\t\t2,074 |
| Earnings\tper\tcommon\tshare\nBasic | $\t\t5.87 | $\t\t2.95 | \t$\t\t1.83 | \t$\t\t\t\t4.05 |
| Diluted | 5.60 | 2.85 | 1.78 | 3.92 |
| Dividends\tdeclared\tper\tcommon\tshare | 0.50 | 0.46 | 0.46 | 0.35 |

|  |  | Three	Months	Ended |  |  |
| :--- | :--- | :--- | :--- | :--- |
| in\tmillions,\texcept\tper\tshare\tdata | December\n2011 | September\n2011 | June\n2011 | March\n2011 |
| Total\tnon-interest\trevenues | $4,984 | $2,231 | \t$5,868 | \t$10,536 |
| Interest\tincome | 3,032 | 3,354 | 3,681 | 3,107 |
| Interest\texpense | 1,967 | 1,998 | 2,268 | 1,749 |
| Net\tinterest\tincome | 1,065 | 1,356 | 1,413 | 1,358 |
| Net\trevenues,\tincluding\tnet\tinterest\tincome | 6,049 | 3,587 | 7,281 | 11,894 |
| Operating\texpenses\t^1 | 4,802 | 4,317 | 5,669 | 7,854 |
| Pre-tax\tearnings/(loss) | 1,247 | (730) | 1,612 | 4,040 |
| Provision/(benefit)\tfor\ttaxes | 234 | (337) | 525 | 1,305 |
| Net\tearnings/(loss) | 1,013 | (393) | 1,087 | 2,735 |
| Preferred\tstock\tdividends | 35 | 35 | 35 | 1,827 |
| Net\tearnings/(loss)\tapplicable\tto\tcommon\tshareholders | $\t\t\t978 | $\t(428) | \t$1,052 | \t$\t\t\t\t\t908 |
| Earnings/(loss)\tper\tcommon\tshare\nBasic | $\t\t1.91 | $(0.84) | \t$\t\t1.96 | \t$\t\t\t\t1.66 |
| Diluted | 1.84 | (0.84) | 1.85 | 1.56 |
| Dividends\tdeclared\tper\tcommon\tshare | 0.35 | 0.35 | 0.35 | 0.35 |

1.The	timing	and	magnitude	of	changes	in	the	firm's	discretionary	compensation	accruals	can	have	a	significant	effect	on	results	in	a	given	quarter.

# Common	Stock	Price	Range

The	table	below	presents	the	high	and	low	sales	prices	per	share	of	the	firm's	common	stock.

|  | 2012 |  | 2011 |  | 2010 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | High | Low | High | Low | High | Low |
| First\tquarter | \t$128.72 | \t$\t\t92.42 | \t$175.34 | \t$153.26 | \t$178.75 | \t$147.81 |
| Second\tquarter | 125.54 | 90.43 | 164.40 | 128.30 | 186.41 | 131.02 |
| Third\tquarter | 122.60 | 91.15 | 139.25 | 91.40 | 157.25 | 129.50 |
| Fourth\tquarter | 129.72 | 113.84 | 118.07 | 84.27 | 171.61 | 144.70 |

# Common	Stock	Performance

The	following	graph	compares	the	performance	of	an	investment	in	the	firm's common	stock	from	November	30,	2007	through	December	31,	2012,	with	the S&P	500	Index	and	the	S&P	500	Financials	Index.	The	graph	assumes	$100	was invested	on	November	30,	2007	in	each	of	the	firm's	common	stock,	the	S&P 500	Index	and

On	February	15,	2013,	the	last	reported	sales	price	for	the	firm's	common	stock on	the	New	York	Stock	Exchange	was	$154.99	per	share.

the	S&P	500	Financials	Index,	and	the	dividends	were	reinvested	on	the	date	of payment	without	payment	of	any	commissions.	The	performance	shown	in	the graph	represents	past	performance	and	should	not	be	considered	an	indication	of future	performance.

the	S&P	500	Index	and	the	S&P	500	Financials	Index,	and	the	dividends	were reinvested	on	the	date	of	payment	without	payment	of	any	commissions.	The performance	shown	in	the	table	represents	past	performance	and	should	not	be considered	an	indication	of	future	performance.

|  | 11/30/07 | 11/28/08 | 12/31/09 | 12/31/10 | 12/31/11 | 12/31/12 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| The\tGoldman\tSachs\tGroup,\tInc. | \t $100.00 | $35.16 | $76.08 | $76.49 | $41.61 | \t $\t\t59.66 |
| S&amp;P\t500\tIndex | 100.00 | 61.91 | 79.13 | 91.04 | 92.96 | 107.84 |
| S&amp;P\t500\tFinancials\tIndex | 100.00 | 42.42 | 49.61 | 55.65 | 46.18 | 59.53 |
|  |  |  |  | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | 229 |

1.As	a	result	of	the	firm's	change	in	fiscal	year-end	during	2009,	this	table	includes	61	months	beginning	November	30,	2007	and	ending	December	31,	2012.

# Selected	Financial	Data

|  |  |  | Year	Ended |  |  | One	Month	Ended |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | December | December | December | December | November | December |
|  | 2012 | 2011 | 2010 | 2009 | 2008 | 2008^\t1 |
| Income\tstatement\tdata\t(in\tmillions)\nTotal\tnon-interest\trevenues | $\t\t30,283 | $\t\t23,619 | $\t\t33,658 | $\t\t37,766 | $\t\t17,946 | $\t\t\t\t\t\t\t\t\t(502) |
| Interest\tincome | 11,381 | 13,174 | 12,309 | 13,907 | 35,633 | 1,687 |
| Interest\texpense | 7,501 | 7,982 | 6,806 | 6,500 | 31,357 | 1,002 |
| Net\tinterest\tincome | 3,880 | 5,192 | 5,503 | 7,407 | 4,276 | 685 |
| Net\trevenues,\tincluding\tnet\tinterest\tincome | 34,163 | 28,811 | 39,161 | 45,173 | 22,222 | 183 |
| Compensation\tand\tbenefits | 12,944 | 12,223 | 15,376 | 16,193 | 10,934 | 744 |
| U.K.\tbank\tpayroll\ttax | — | — | 465 | — | — | — |
| Other\toperating\texpenses | 10,012 | 10,419 | 10,428 | 9,151 | 8,952 | 697 |
| Pre-tax\tearnings/(loss) | $\t\t11,207 | $\t\t\t\t6,169 | $\t\t12,892 | $\t\t19,829 | $\t\t\t\t2,336 | $\t\t\t\t\t\t\t(1,258) |
| Balance\tsheet\tdata\t(in\tmillions) |  |  |  |  |  |  |
| Total\tassets | $938,555 | $923,225 | $911,332 | $848,942 | $884,547 | $1,112,225 |
| Other\tsecured\tfinancings\t(long-term) | 8,965 | 8,179 | 13,848 | 11,203 | 17,458 | 18,413 |
| Unsecured\tlong-term\tborrowings | 167,305 | 173,545 | 174,399 | 185,085 | 168,220 | 185,564 |
| Total\tliabilities | 862,839 | 852,846 | 833,976 | 778,228 | 820,178 | 1,049,171 |
| Total\tshareholders'\tequity | 75,716 | 70,379 | 77,356 | 70,714 | 64,369 | 63,054 |
| Common\tshare\tdata\t(in\tmillions,\texcept\tper\tshare\tamounts) |  |  |  |  |  |  |
| Earnings/(loss)\tper\tcommon\tshare |  |  |  |  |  |  |
| Basic | $\t\t\t\t14.63 | $\t\t\t\t\t\t4.71 | $\t\t\t\t14.15 | $\t\t\t\t23.74 | $\t\t\t\t\t\t4.67 | $\t\t\t\t\t\t\t\t(2.15) |
| Diluted | 14.13 | 4.51 | 13.18 | 22.13 | 4.47 | (2.15) |
| Dividends\tdeclared\tper\tcommon\tshare | 1.77 | 1.40 | 1.40 | 1.05 | 1.40 | 0.47^\t3 |
| Book\tvalue\tper\tcommon\tshare^\t2 | 144.67 | 130.31 | 128.72 | 117.48 | 98.68 | 95.84 |
| Average\tcommon\tshares\toutstanding |  |  |  |  |  |  |
| Basic | 496.2 | 524.6 | 542.0 | 512.3 | 437.0 | 485.5 |
| Diluted | 516.1 | 556.9 | 585.3 | 550.9 | 456.2 | 485.5 |
| Selected\tdata\t(unaudited) |  |  |  |  |  |  |
| Total\tstaff |  |  |  |  |  |  |
| Americas | 16,400 | 17,200 | 19,900 | 18,900 | 19,700 | 19,200 |
| Non-Americas | 16,000 | 16,100 | 15,800 | 13,600 | 14,800 | 14,100 |
| Total\tstaff | 32,400 | 33,300 | 35,700 | 32,500 | 34,500 | 33,300 |
| Assets\tunder\tmanagement\t(in\tbillions) |  |  |  |  |  |  |
| Asset\tclass |  |  |  |  |  |  |
| Alternative\tinvestments | $\t\t\t\t\t\t\t133 | $\t\t\t\t\t\t\t142 | $\t\t\t\t\t\t\t148 | $\t\t\t\t\t\t\t146 | $\t\t\t\t\t\t\t146 | $\t\t\t\t\t\t\t\t\t\t145 |
| Equity | 133 | 126 | 144 | 146 | 112 | 114 |
| Fixed\tincome | 370 | 340 | 340 | 315 | 248 | 253 |
| Total\tnon-money\tmarket\tassets | 636 | 608 | 632 | 607 | 506 | 512 |
| Money\tmarkets | 218 | 220 | 208 | 264 | 273 | 286 |
| Total\tassets\tunder\tmanagement | $\t\t\t\t\t\t\t854 | $\t\t\t\t\t\t\t828 | $\t\t\t\t\t\t\t840 | $\t\t\t\t\t\t\t871 | $\t\t\t\t\t\t\t779 | $\t\t\t\t\t\t\t\t\t\t798 |

1.In	 connection	 with	 becoming	 a	 bank	 holding	 company, the firm	 was required to	 change its fiscal	 year-end from	 November to	 December.	 December	 2008 represents the	 period from November	29,	2008	to	December	26,	2008.

2.Book	value	per	common	share	is	based	on	common	shares	outstanding,	including	RSUs	granted	to	employees	with	no	future	service	requirements,	of	480.5	million,	516.3	million,	546.9	million, 542.7	million,	485.4	million	and	485.9	million	as	of	December	2012,	December	2011,	December	2010,	December	2009,	November	2008	and	December	2008,	respectively.

3.Rounded	to	the	nearest	penny.	Exact	dividend	amount	was	$0.4666666	per	common	share	and	was	reflective	of	a	four-month	period	(December	2008	through	March	2009),	due	to	the	change	in the	firm's	fiscal	year-end.

# Statistical	Disclosures

# Distribution	of	Assets,	Liabilities	and	Shareholders'	Equity

The	table	below	presents	a	summary	of	consolidated	average	balances	and	interest	rates.

|  |  | 2012 |  |  | 2011 |  |  | 2010 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Average |  | Average | Average |  | Average | Average |  | Average |
| in\tmillions,\texcept\trates | balance | \tInterest | rate | balance | Interest | rate | balance | Interest | rate |
| Assets |  |  |  |  |  |  |  |  |  |
| Deposits\twith\tbanks | \t$\t\t52,500 | \t$\t\t\t\t\t156 | 0.30% | \t$\t\t38,039 | \t$\t\t\t\t\t125 | 0.33% | \t$\t\t29,371 | \t$\t\t\t\t\t\t\t86 | 0.29% |
| U.S. | 49,123 | 132 | 0.27 | 32,770 | 95 | 0.29 | 24,988 | 67 | 0.27 |
| Non-U.S. | 3,377 | 24 | 0.71 | 5,269 | 30 | 0.57 | 4,383 | 19 | 0.43 |
| Securities\tborrowed,\tsecurities\tpurchased\tunder\tagreements\tto\tresell\nand\tfederal\tfunds\tsold | 331,828 | (77) | (0.02) | 351,896 | 666 | 0.19 | 353,719 | 540 | 0.15 |
| U.S. | 191,166 | (431) | (0.23) | 219,240 | (249) | (0.11) | 243,907 | 75 | 0.03 |
| Non-U.S. | 140,662 | 354 | 0.25 | 132,656 | 915 | 0.69 | 109,812 | 465 | 0.42 |
| Financial\tinstruments\towned,\tat\tfair\tvalue\t^1,\t2 | 310,982 | 9,817 | 3.16 | 287,322 | 10,718 | 3.73 | 273,801 | 10,346 | 3.78 |
| U.S. | 190,490 | 6,548 | 3.44 | 183,920 | 7,477 | 4.07 | 189,136 | 7,865 | 4.16 |
| Non-U.S. | 120,492 | 3,269 | 2.71 | 103,402 | 3,241 | 3.13 | 84,665 | 2,481 | 2.93 |
| Other\tinterest-earning\tassets\t^3 | 136,427 | 1,485 | 1.09 | 143,270 | 1,665 | 1.16 | 118,364 | 1,337 | 1.13 |
| U.S. | 90,071 | 974 | 1.08 | 99,042 | 915 | 0.92 | 82,965 | 689 | 0.83 |
| Non-U.S. | 46,356 | 511 | 1.10 | 44,228 | 750 | 1.70 | 35,399 | 648 | 1.83 |
| Total\tinterest-earning\tassets | 831,737 | 11,381 | 1.37 | 820,527 | 13,174 | 1.61 | 775,255 | 12,309 | 1.59 |
| Cash\tand\tdue\tfrom\tbanks | 7,357 |  |  | 4,987 |  |  | 3,709 |  |  |
| Other\tnon-interest-earning\tassets\t^2 | 107,702 |  |  | 118,901 |  |  | 113,310 |  |  |
| Total\tAssets | \t$946,796 |  |  | \t$944,415 |  |  | \t$892,274 |  |  |
| Liabilities |  |  |  |  |  |  |  |  |  |
| Interest-bearing\tdeposits | \t$\t\t56,399 | 399 | 0.71 | \t$\t\t40,266 | 280 | 0.70 | \t$\t\t38,011 | 304 | 0.80 |
| U.S. | 48,668 | 362 | 0.74 | 33,234 | 243 | 0.73 | 31,418 | 279 | 0.89 |
| Non-U.S. | 7,731 | 37 | 0.48 | 7,032 | 37 | 0.53 | 6,593 | 25 | 0.38 |
| Securities\tloaned\tand\tsecurities\tsold\tunder\tagreements\tto\trepurchase | 177,550 | 822 | 0.46 | 171,753 | 905 | 0.53 | 160,280 | 708 | 0.44 |
| U.S. | 121,145 | 380 | 0.31 | 110,235 | 280 | 0.25 | 112,839 | 355 | 0.31 |
| Non-U.S. | 56,405 | 442 | 0.78 | 61,518 | 625 | 1.02 | 47,441 | 353 | 0.74 |
| Financial\tinstruments\tsold,\tbut\tnot\tyet\tpurchased,\tat\tfair\tvalue\t^1,\t2 | 94,740 | 2,438 | 2.57 | 102,282 | 2,464 | 2.41 | 89,040 | 1,859 | 2.09 |
| U.S. | 41,436 | 852 | 2.06 | 52,065 | 984 | 1.89 | 44,713 | 818 | 1.83 |
| Non-U.S. | 53,304 | 1,586 | 2.98 | 50,217 | 1,480 | 2.95 | 44,327 | 1,041 | 2.35 |
| Short-term\tborrowings\t^4,\t5 | 70,359 | 581 | 0.83 | 78,497 | 526 | 0.67 | 55,512 | 453 | 0.82 |
| U.S. | 47,614 | 479 | 1.01 | 50,659 | 431 | 0.85 | 33,306 | 394 | 1.18 |
| Non-U.S. | 22,745 | 102 | 0.45 | 27,838 | 95 | 0.34 | 22,206 | 59 | 0.27 |
| Long-term\tborrowings\t^5,^6 | 176,698 | 3,736 | 2.11 | 186,148 | 3,439 | 1.85 | 193,031 | 3,155 | 1.63 |
| U.S. | 170,163 | 3,582 | 2.11 | 179,004 | 3,235 | 1.81 | 183,338 | 2,910 | 1.59 |
| Non-U.S. | 6,535 | 154 | 2.36 | 7,144 | 204 | 2.86 | 9,693 | 245 | 2.53 |
| Other\tinterest-bearing\tliabilities\t^7 | 206,790 | (475) | (0.23) | 203,940 | 368 | 0.18 | 189,008 | 327 | 0.17 |
| U.S. | 150,986 | (988) | (0.65) | 149,958 | (535) | (0.36) | 142,752 | (221) | (0.15) |
| Non-U.S. | 55,804 | 513 | 0.92 | 53,982 | 903 | 1.67 | 46,256 | 548 | 1.18 |
| Total\tinterest-bearing\tliabilities | 782,536 | 7,501 | 0.96 | 782,886 | 7,982 | 1.02 | 724,882 | 6,806 | 0.94 |
| Non-interest-bearing\tdeposits | 324 |  |  | 140 |  |  | 169 |  |  |
| Other\tnon-interest-bearing\tliabilities\t^2 | 91,406 |  |  | 88,681 |  |  | 92,966 |  |  |
| Total\tliabilities | 874,266 |  |  | 871,707 |  |  | 818,017 |  |  |
| Shareholders'\tequity |  |  |  |  |  |  |  |  |  |
| Preferred\tstock | 4,392 |  |  | 3,990 |  |  | 6,957 |  |  |
| Common\tstock | 68,138 |  |  | 68,718 |  |  | 67,300 |  |  |
| Total\tshareholders'\tequity | 72,530 |  |  | 72,708 |  |  | 74,257 |  |  |
| Total\tliabilities\tand\tshareholders'\tequity | \t$946,796 |  |  | \t$944,415 |  |  | \t$892,274 |  |  |
| Interest\trate\tspread |  |  | 0.41% |  |  | 0.59% |  |  | 0.65% |
| Net\tinterest\tincome\tand\tnet\tyield\ton\ninterest-earning\tassets |  | \t$\t\t3,880 | 0.47 |  | \t$\t\t5,192 | 0.63 |  | \t$\t\t5,503 | 0.71 |
| U.S. |  | 2,556 | 0.49 |  | 3,600 | 0.67 |  | 4,161 | 0.77 |
| Non-U.S. |  | 1,324 | 0.43 |  | 1,592 | 0.56 |  | 1,342 | 0.57 |
| Percentage\tof\tinterest-earning\tassets\tand\tinterest-bearing\nliabilities\tattributable\tto\n8\nnon-U.S.\toperations |  |  |  |  |  |  |  |  |  |
| Assets |  |  | 37.38% |  |  | 34.80% |  |  | 30.22% |
| Liabilities |  |  | 25.88 |  |  | 26.53 |  |  | 24.35 |
|  |  |  |  |  |  |  | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | 231 |

1.Consists	of	cash	financial	instruments,	including	equity	securities	and	convertible	debentures.

2.Derivative	instruments	and	commodities	are	included	in	other	non-interest-earning	assets	and	other	non-interest-bearing	liabilities.

3.Primarily	consists	of	cash	and	securities	segregated	for	regulatory	and	other	purposes	and	certain	receivables	from	customers	and	counterparties.

4.Consists	of	short-term	other	secured	financings	and	unsecured	short-term	borrowings.

5.Interest	rates	include	the	effects	of	interest	rate	swaps	accounted	for	as	hedges.

6.Consists	of	long-term	secured	financings	and	unsecured	long-term	borrowings.

7.Primarily	consists	of	certain	payables	to	customers	and	counterparties.

8.Assets,	liabilities	and	interest	are	attributed	to	U.S.	and	non-U.S.	based	on	the	location	of	the	legal	entity	in	which	the	assets	and	liabilities	are	held.

# Changes	in	Net	Interest	Income,	Volume	and	Rate	Analysis

The table	below	presents	an	analysis	of the	effect	on	net interest income	of volume	and	rate	changes.	In	this	analysis,

changes	due	to	volume/rate	variance	have	been	allocated	to	volume.

For	the	Year	Ended

|  | December	2012	versus	December	2011 | December	2012	versus	December	2011 | December	2012	versus	December	2011 | December	2011	versus	December	2010 | December	2011	versus	December	2010 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Increase\t(decrease)\tdue\tto\nchange\tin: | Increase\t(decrease)\tdue\tto\nchange\tin: |  | Increase\t(decrease)\tdue\tto\nchange\tin: | Increase\t(decrease)\tdue\tto\nchange\tin: |  |
|  |  |  | Net |  |  | Net |
| in\tmillions | Volume | Rate | change | Volume | Rate | change |
| Interest-earning\tassets |  |  |  |  |  |  |
| Deposits\twith\tbanks | $\t\t\t32 | $\t\t\t\t\t\t\t(1) | $\t\t\t\t\t\t31 | $\t\t\t28 | $\t\t\t\t11 | $\t\t\t\t\t39 |
| U.S. | 45 | (8) | 37 | 23 | 5 | 28 |
| Non-U.S. | (13) | 7 | (6) | 5 | 6 | 11 |
| Securities\tborrowed,\tsecurities\tpurchased\tunder\tagreements\tto\tresell\tand\tfederal\tfunds\tsold | 83 | (826) | (743) | 186 | (60) | 126 |
| U.S. | 63 | (245) | (182) | 28 | (352) | (324) |
| Non-U.S. | 20 | (581) | (561) | 158 | 292 | 450 |
| Financial\tinstruments\towned,\tat\tfair\tvalue | 689 | (1,590) | (901) | 375 | (3) | 372 |
| U.S. | 225 | (1,154) | (929) | (212) | (176) | (388) |
| Non-U.S. | 464 | (436) | 28 | 587 | 173 | 760 |
| Other\tinterest-earning\tassets | (74) | (106) | (180) | 299 | 29 | 328 |
| U.S. | (97) | 156 | 59 | 149 | 77 | 226 |
| Non-U.S. | 23 | (262) | (239) | 150 | (48) | 102 |
| Change\tin\tinterest\tincome | 730 | (2,523) | (1,793) | 888 | (23) | 865 |
| Interest-bearing\tliabilities |  |  |  |  |  |  |
| Interest-bearing\tdeposits | 118 | 1 | 119 | 15 | (39) | (24) |
| U.S. | 115 | 4 | 119 | 13 | (49) | (36) |
| Non-U.S. | 3 | (3) | — | 2 | 10 | 12 |
| Securities\tloaned\tand\tsecurities\tsold\tunder\tagreements\tto\trepurchase | (6) | (77) | (83) | 136 | 61 | 197 |
| U.S. | 34 | 66 | 100 | (7) | (68) | (75) |
| Non-U.S. | (40) | (143) | (183) | 143 | 129 | 272 |
| Financial\tinstruments\tsold,\tbut\tnot\tyet\tpurchased,\tat\tfair\tvalue | (127) | 101 | (26) | 313 | 292 | 605 |
| U.S. | (219) | 87 | (132) | 139 | 27 | 166 |
| Non-U.S. | 92 | 14 | 106 | 174 | 265 | 439 |
| Short-term\tborrowings | (54) | 109 | 55 | 167 | (94) | 73 |
| U.S. | (31) | 79 | 48 | 147 | (110) | 37 |
| Non-U.S. | (23) | 30 | 7 | 20 | 16 | 36 |
| Long-term\tborrowings | (200) | 497 | 297 | (151) | 435 | 284 |
| U.S. | (186) | 533 | 347 | (78) | 403 | 325 |
| Non-U.S. | (14) | (36) | (50) | (73) | 32 | (41) |
| Other\tinterest-bearing\tliabilities | 10 | (853) | (843) | 103 | (62) | 41 |
| U.S. | (7) | (446) | (453) | (26) | (288) | (314) |
| Non-U.S. | 17 | (407) | (390) | 129 | 226 | 355 |
| Change\tin\tinterest\texpense | (259) | (222) | (481) | 583 | 593 | 1,176 |
| Change\tin\tnet\tinterest\tincome | $\t989 | $(2,301) | $(1,312) | $\t305 | $(616) | $\t\t(311) |
|  |  |  |  | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | 233 |

# Available-for-sale	Securities	Portfolio

The	table	below	presents	the	fair	value	of	available-for-sale	securities.	As	of December	 2012,	 such	 assets related to the firm's reinsurance	 business	 were classified	as	held	for	sale

and	were	included	in	"Other	assets."	See	Note	12	for	further	information	about assets	held	for	sale.

|  |  | Gross | Gross |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Amortized | Unrealized | Unrealized | Fair |
| in\tmillions | Cost | Gains | Losses | Value |
| Available-for-sale\tsecurities,\tDecember\t2012 |  |  |  |  |
| Commercial\tpaper,\tcertificates\tof\tdeposit,\ttime\tdeposits\tand\tother\tmoney\tmarket\tinstruments | $\t\t\t\t467 | $\t\t\t— | $\t\t\t\t— | \t$\t\t\t467 |
| U.S.\tgovernment\tand\tfederal\tagency\tobligations | 814 | 47 | (5) | 856 |
| Non-U.S.\tgovernment\tand\tagency\tobligations | 2 | — | — | 2 |
| Mortgage\tand\tother\tasset-backed\tloans\tand\tsecurities | 3,049 | 341 | (8) | 3,382 |
| Corporate\tdebt\tsecurities | 3,409 | 221 | (5) | 3,625 |
| State\tand\tmunicipal\tobligations | 539 | 91 | (1) | 629 |
| Other\tdebt\tobligations | 112 | 3 | (2) | 113 |
| Total\tavailable-for-sale\tsecurities | $8,392 | $703 | $\t\t(21) | \t$9,074 |
| Available-for-sale\tsecurities,\tDecember\t2011 |  |  |  |  |
| Commercial\tpaper,\tcertificates\tof\tdeposit,\ttime\tdeposits\tand\tother\tmoney\tmarket\tinstruments | $\t\t\t\t406 | $\t\t\t— | $\t\t\t\t— | \t$\t\t\t406 |
| U.S.\tgovernment\tand\tfederal\tagency\tobligations | 582 | 80 | — | 662 |
| Non-U.S.\tgovernment\tand\tagency\tobligations | 19 | — | — | 19 |
| Mortgage\tand\tother\tasset-backed\tloans\tand\tsecurities | 1,505 | 30 | (119) | 1,416 |
| Corporate\tdebt\tsecurities | 1,696 | 128 | (11) | 1,813 |
| State\tand\tmunicipal\tobligations | 418 | 63 | — | 481 |
| Other\tdebt\tobligations | 67 | — | (3) | 64 |
| Total\tavailable-for-sale\tsecurities | $4,693 | $301 | $(133) | \t$4,861 |

The	table	below	presents	the	fair	value,	amortized	cost	and	weighted	average yields	of	available-for-sale	securities	by

contractual	maturity.	Yields	are	calculated	on	a	weighted	average	basis.

|  |  |  | Due	After |  | Due	After |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Due\tin |  | One\tYear\tThrough | One\tYear\tThrough | Five\tYears\tThrough | Five\tYears\tThrough | Due\tAfter |  |  |  |
|  | One\tYear\tor\tLess | One\tYear\tor\tLess | Five\tYears |  | Ten\tYears |  | Ten\tYears |  | Total |  |
| $\tin\tmillions | \tAmount | \t Yield | \t Amount | \t Yield | Amount | Yield | \tAmount | \tYield | \tAmount | \tYield |
| Fair\tvalue\tof\tavailable-for-sale\tsecurities |  |  |  |  |  |  |  |  |  |  |
| Commercial\tpaper,\tcertificates\tof\tdeposit,\ttime\tdeposits\tand\tother |  |  |  |  |  |  |  |  |  |  |
| money\tmarket\tinstruments | $467 | —% | $\t\t\t\t\t— | —% | $\t\t\t\t\t\t— | —% | $\t\t\t\t\t\t— | —% | $\t\t\t467 | % |
| U.S.\tgovernment\tand\tfederal\tagency\tobligations | 57 | — | 267 | 1 | 88 | 2 | 444 | 4 | 856 | 3 |
| Non-U.S.\tgovernment\tand\tagency\tobligations | — | — | — | — | — | — | 2 | 4 | 2 | 4 |
| Mortgage\tand\tother\tasset-backed\tloans\tand\tsecurities | 4 | 3 | 218 | 5 | 23 | 6 | 3,137 | 6 | 3,382 | 6 |
| Corporate\tdebt\tsecurities | 74 | 2 | 804 | 3 | 1,567 | 4 | 1,180 | 5 | 3,625 | 4 |
| State\tand\tmunicipal\tobligations | — | — | 10 | 5 | — | — | 619 | 6 | 629 | 6 |
| Other\tdebt\tobligations | 18 | 1 | 6 | 1 | 5 | 5 | 84 | 4 | 113 | 3 |
| Total\tavailable-for-sale\tsecurities | $620 |  | $1,305 |  | $1,683 |  | $5,466 |  | $9,074 |  |
| Amortized\tcost\tof\tavailable-for-sale\tsecurities | $617 |  | $1,267 |  | $1,593 |  | $4,915 |  | $8,392 |  |

|  |  |  |  |  | As	of	December	2011 |  |  |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | Due\tAfter |  | Due\tAfter |  |  |  |  |  |
|  | Due\tin |  | One\tYear\tThrough |  | Five\tYears\tThrough |  | Due\tAfter |  |  |  |
|  | One\tYear\tor\tLess | One\tYear\tor\tLess | Five\tYears |  | Ten\tYears |  | Ten\tYears |  | Total |  |
| $\tin\tmillions | Amount | \t Yield | Amount | Yield | Amount | Yield | \t Amount | \t Yield | \t Amount | \t Yield |
| Fair\tvalue\tof\tavailable-for-sale\tsecurities |  |  |  |  |  |  |  |  |  |  |
| Commercial\tpaper,\tcertificates\tof\tdeposit,\ttime\tdeposits\tand\tother |  |  |  |  |  |  |  |  |  |  |
| money\tmarket\tinstruments | $406 | —% | $\t\t\t\t\t— | —% | $\t\t\t\t\t— | —% | $\t\t\t\t\t\t— | —% | $\t\t\t406 | —% |
| U.S.\tgovernment\tand\tfederal\tagency\tobligations | 72 | — | 132 | 3 | 69 | 2 | 389 | 4 | 662 | 3 |
| Non-U.S.\tgovernment\tand\tagency\tobligations | — | — | 9 | 3 | 9 | 6 | 1 | 4 | 19 | 4 |
| Mortgage\tand\tother\tasset-backed\tloans\tand\tsecurities | — | — | 120 | 7 | 19 | 5 | 1,277 | 10 | 1,416 | 10 |
| Corporate\tdebt\tsecurities | 33 | 5 | 425 | 4 | 848 | 5 | 507 | 6 | 1,813 | 5 |
| State\tand\tmunicipal\tobligations | 1 | 5 | 12 | 5 | — | — | 468 | 6 | 481 | 6 |
| Other\tdebt\tobligations | — | — | 10 | 4 | — | — | 54 | 3 | 64 | 3 |
| Total\tavailable-for-sale\tsecurities | $512 |  | $\t\t708 |  | $\t\t\t945 |  | $2,696 |  | $4,861 |  |
| Amortized\tcost\tof\tavailable-for-sale\tsecurities | $512 |  | $\t\t696 |  | $\t\t\t899 |  | $2,586 |  | $4,693 |  |
|  |  |  |  |  |  |  | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | Goldman\tSachs\t2012\tForm\t10-K | 235 |

The	table	below	presents	a	summary	of	the	firm's	interest-bearing	deposits.

1.Based	on	net	earnings	applicable	to	common	shareholders	divided	by	average	monthly	common	shareholders'	equity.

2.Based	on	net	earnings	divided	by	average	monthly	total	shareholders'	equity.

3.Dividends	declared	per	common	share	as	a	percentage	of	diluted	earnings	per	common	share.

# Short-term	and	Other	Borrowed	Funds

The table below presents a summary of the firm's securities loaned and securities	sold	under	agreements	to	repurchase	and	short-term	borrowings.	These borrowings	generally

mature	within	one	year	of	the	financial	statement	date	and	include	borrowings that	are	redeemable	at	the	option	of	the	holder	within	one	year	of	the	financial statement	date.

|  | Agreements	to	Repurchase | Agreements	to	Repurchase | Agreements	to	Repurchase | Short-Term	Borrowings	^1,	2 | Short-Term	Borrowings	^1,	2 | Short-Term	Borrowings	^1,	2 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | As\tof\tDecember |  |  | As\tof\tDecember |  |
| $\tin\tmillions | 2012 | 2011 | 2010 | 2012 | 2011 | 2010 |
| Amounts\toutstanding\tat\tyear-end | $185,572 | $171,684 | $173,557 | \t$67,349 | \t$78,223 | \t$72,371 |
| Average\toutstanding\tduring\tthe\tyear | 177,550 | 171,753 | 160,280 | 70,359 | 78,497 | 55,512 |
| Maximum\tmonth-end\toutstanding | 198,456 | 190,453 | 173,557 | 75,280 | 87,281 | 72,371 |
| Weighted\taverage\tinterest\trate |  |  |  |  |  |  |
| During\tthe\tyear | 0.46% | 0.53% | 0.44% | 0.83% | 0.67% | 0.82% |
| At\tyear-end | 0.44 | 0.39 | 0.44 | 0.79 | 0.92 | 0.63 |

2.The	weighted	average	interest	rates	for	these	borrowings	include	the	effect	of	hedging	activities.

# Cross-border	Outstandings

Cross-border	 outstandings	 are	 based	 on	 the	 Federal	 Financial	 Institutions Examination	Council's	(FFIEC)	regulatory	guidelines	for	reporting	cross-border information	and	represent	the	amounts	that	the	firm	may	not	be	able	to	obtain from	 a	 foreign	 country	 due	 to	 country-specific	 events,	 including	 unfavorable economic	and	political	conditions,	economic	and	social	instability,	and	changes in	government	policies.

Credit	 exposure	 represents	 the	 potential	 for	 loss	 due	 to	 the	 default	 or deterioration	in	credit	quality	of	a	counterparty	or	an	issuer	of	securities	or	other instruments	the	firm	holds	and	is	measured	based	on	the	potential	loss	in	an event	of	non-payment	by	a	counterparty.	Credit	exposure	is	reduced	through	the effect	 of	 risk	 mitigants,	 such	 as	 netting	 agreements	 with	 counterparties	 that permit	the	firm	to	offset	receivables	and	payables	with	such	counterparties	or obtaining	collateral	from	counterparties.	The	tables	below	do	not	include	all	the effects	of	such	risk	mitigants	and	do	not	represent	the	firm's	credit	exposure.

Claims	in	the	tables	below	include	cash,	receivables,	securities	purchased	under agreements	 to	 resell,	 securities	 borrowed	 and	 cash	 financial	 instruments,	 but exclude	 derivative	 instruments	 and	 commitments.	 Securities	 purchased	 under agreements	 to	 resell	 and	 securities	 borrowed	 are	 presented	 gross,	 without reduction	 for	 related	 securities	 collateral	 held,	 based	 on	 the	 domicile	 of	 the counterparty.	Margin	loans	(included	in	receivables)	are	presented	based	on	the amount	of	collateral	advanced	by	the	counterparty.

The	tables	below	present	cross-border	outstandings	for	each	country	in	which cross-border	outstandings	exceed	0.75%	of	consolidated	assets	 in	accordance with	the	FFIEC	guidelines.

1.Primarily	comprised	of	secured	lending	transactions	with	a	clearing	house	which	are	secured	by	collateral.

2.Primarily	comprised	of	interests	in	and	receivables	from	funds	domiciled	in	Ireland,	but	whose	underlying	investments	are	primarily	located	outside	of	Ireland,	and	secured	lending	transactions.

3.Primarily	comprised	of	secured	lending	transactions	which	are	primarily	secured	by	German	government	obligations.

| France | $29,250^	1 | $		7,373							$		4,860							$41,483 | $		7,373							$		4,860							$41,483 | $		7,373							$		4,860							$41,483 |
| :--- | :--- | :--- | :--- | :--- |
| Cayman\tIslands | 7 | — | 35,850 | 35,857 |
| Japan | 21,881 | 49 | 8,002 | 29,932 |
| Germany | 3,767 | 16,572 | 2,782 | 23,121 |
| China | 10,849 | 701 | 2,931 | 14,481 |
| United\tKingdom | 2,829 | 2,401 | 6,800 | 12,030 |
| Switzerland | 2,473 | 151 | 7,616 | 10,240 |
| Canada | 260 | 366 | 6,741 | 7,367 |

# Item 9. Changes in and Disagreements with Accountants	on	Accounting	and	Financial	Disclosure

There	were	no	changes	in	or	disagreements	with	accountants	on	accounting	and financial	disclosure	during	the	last	two	years.

# Item	9A.				Controls	and	Procedures

As	of	the	end	of	the	period	covered	by	this	report,	an	evaluation	was	carried	out by	Goldman	Sachs'	management,	with	the	participation	of	our	Chief	Executive Officer	 and	 Chief	 Financial	 Officer,	 of	 the	 effectiveness	 of	 our	 disclosure controls	and	procedures	(as	defined	in	Rule	13a-15(e)	under	the	Exchange	Act). Based	upon	that	evaluation,	our	Chief	Executive	Officer	and	Chief	Financial Officer	concluded	that	these	disclosure	controls	and	procedures	were	effective	as of	the	end	of	the	period	covered	by	this	report.	In	addition,	no	change	in	our internal	control	over	financial	reporting	(as	defined	in	Rule	13a-15(f)	under	the Exchange	 Act)	 occurred	 during	 the	 fourth	 quarter	 of	 our	 year	 ended December	 31,	 2012	 that	 has	 materially	 affected,	 or	 is	 reasonably	 likely	 to materially	affect,	our	internal	control	over	financial	reporting.

Management's	 Report	 on	 Internal	 Control	 over	 Financial	 Reporting	 and	 the Report	of	Independent	Registered	Public	Accounting	Firm	are	set	forth	in	Part	II, Item	8	of	this	Form	10-K.

# Item	9B.				Other	Information

Effective	 February 28, 2013,	 the	 Board	 approved	 an	 amendment	 to	 our Amended	 and	 Restated	 By-Laws	 solely	 to	 change	 two	 references	 to	 the "Corporate	 Governance	 and	 Nominating	 Committee"	 to	 the	 "Corporate Governance,	Nominating	and	Public	Responsibilities	Committee,"	reflecting	a change	in	the	name	of	that	Board	committee.

# PART	III

# Item	10.				Directors,	Executive	Officers	and	Corporate Governance

Information	 relating	 to	 our	 executive	 officers	 is	 included	 on	 page	 39	 of	 this Form	10-K.	Information	relating	to	our	directors,	including	our	audit	committee and	audit	committee	financial	experts	and	the	procedures	by	which	shareholders can	recommend	director	nominees,	and	our	executive	officers	will	be	 in	our definitive	Proxy	Statement	for	our	2013	Annual	Meeting	of	Shareholders,	which will	be	filed	within	120	days	of	the	end	of	2012	(2013	Proxy	Statement)	and	is incorporated	herein	by	reference.	Information	relating	to	our	Code	of	Business Conduct	and	Ethics,	which	applies	to	our	senior	financial	officers,	is	included under	"Available	Information"	in	Part	I,	Item	1	of	this	Form		10-K.

# Item	11.				Executive	Compensation

Information	relating	to	our	executive	officer	and	director	compensation	and	the compensation	committee	of	the	Board	will	be	in	the	2013	Proxy	Statement	and	is incorporated	herein	by	reference.

# Item	12. 	Security	Ownership	of	Certain	Beneficial

# Owners	 and	 Management	 and	 Related	 Stockholder

# Matters

Information	relating	to	security	ownership	of	certain	beneficial	owners	of	our common stock and information relating to the security ownership of our management	will	be in the	2013	Proxy	Statement	and is incorporated	herein by	reference.

The	following	table	provides	information	as	of	December	31,	2012,	the	last	day of	 2012, regarding securities to	 be issued	 on	 exercise	 of	 outstanding stock options	or	pursuant	to	outstanding	restricted	stock	units	and	performance-based awards, and securities remaining available for issuance under our equity compensation	plans	that	were	in	effect	during	2012.

1.The	Goldman	Sachs	Amended	and	Restated	Stock	Incentive	Plan	(SIP)	was	approved	by	the	shareholders	of	Group	Inc.	at	our	2003	Annual	Meeting	of	Shareholders	and	is	a	successor	plan	to	The Goldman	Sachs	1999	Stock	Incentive	Plan	(1999	Plan),	which	was	approved	by	our	shareholders	immediately	prior	to	our	initial	public	offering	in	May	1999	and	under	which	no	additional	awards have	been	granted	since	approval	of	the	SIP.	The	SIP	was	amended	and	restated,	effective	December	31,	2008	and	further	amended	on	December	20,	2012	to	extend	its	term	until	Group	Inc.'s 2013	Annual	Meeting	of	Shareholders,	at	which	meeting	approval	of	a	new	equity	compensation	plan	will	be	voted	upon	by	shareholders.

2.Includes:	(i)	43,217,111	shares	of	common	stock	that	may	be	issued	upon	exercise	of	outstanding	options;	(ii)	23,803,555	shares	that	may	be	issued	pursuant	to	outstanding	restricted	stock	units; and	(iii)	6,291	shares	that	may	be	issued	pursuant	to	outstanding	performance-based	units	granted	under	the	SIP.	These	awards	are	subject	to	vesting	and	other	conditions	to	the	extent	set	forth	in the	respective	award	agreements,	and	the	underlying	shares	will	be	delivered	net	of	any	required	tax	withholding.

3.This	weighted-average	exercise	price	relates	only	to	the	options	described	in	footnote	2.	Shares	underlying	restricted	stock	units	and	performance-based	units	are	deliverable	without	the	payment	of any	consideration,	and	therefore	these	awards	have	not	been	taken	into	account	in	calculating	the	weighted-average	exercise	price.

4.Represents	shares	remaining	to	be	issued	under	the	SIP,	excluding	shares	reflected	in	the	second	column.	The	total	number	of	shares	of	common	stock	that	may	be	delivered	pursuant	to	awards granted	under	the	SIP	through	the	end	of	our	2008	fiscal	year	could	not	exceed	250	million	shares.	The	total	number	of	shares	of	common	stock	that	may	be	delivered	pursuant	to	awards	granted under	the	SIP	in	our	2009	fiscal	year	and	each	fiscal	year	thereafter	cannot	exceed	5%	of	the	issued	and	outstanding	shares	of	common	stock,	determined	as	of	the	last	day	of	the	immediately preceding	fiscal	year,	increased	by	the	number	of	shares	available	for	awards	in	previous	years	but	not	covered	by	awards	granted	in	such	years.	There	are	no	shares	remaining	to	be	issued	under the	1999	Plan	other	than	those	reflected	in	the	second	column.

# Item 13. Certain Relationships and Related Transactions,	and	Director	Independence

Information	regarding	certain	relationships	and	related	transactions	and	director independence	will	be	in	the	2013	Proxy	Statement	and	is	incorporated	herein	by reference.

# Item	14.				Principal	Accountant	Fees	and	Services

Information	regarding	principal	accountant	fees	and	services	will	be	in	the	2013 Proxy	Statement	and	is	incorporated	herein	by	reference.

# PART	IV

# Item	15.				Exhibits	and	Financial	Statement	Schedules

# (a)	Documents	filed	as	part	of	this	Report:

# 1.	Consolidated	Financial	Statements

The	consolidated	financial	statements	required	to	be	filed	in	this	Form	10-K	are	included	in	Part	II,	Item	8	hereof.

Certain	instruments	defining	the	rights	of	holders	of	long-term	debt	securities	of	the	Registrant	and	its	subsidiaries	are	omitted	pursuant	to	Item	601(b) (4)(iii)	of	Regulation	S-K.	The	Registrant	hereby	undertakes	to	furnish	to	the	SEC,	upon	request,	copies	of	any	such	instruments.

		10.1 The	Goldman	Sachs	Amended	and	Restated	Stock	Incentive	Plan	(incorporated	by	reference	to	Exhibit	10.1	to	the	Registrant's	Annual	Report	on Form	10-K	for	the	fiscal	year	ended	November	28,	2008).	^†

		10.6 Tax	Indemnification	Agreement,	dated	as	of	May	7,	1999,	by	and	among	The	Goldman	Sachs	Group,	Inc.	and	various	parties	(incorporated	by	reference to	Exhibit	10.25	to	the	Registrant's	registration	statement	on	Form	S-1	(No.	333-75213)).

		10.26 General	Guarantee	Agreement,	dated	January	30,	2006,	made	by	The	Goldman	Sachs	Group,	Inc.	relating	to	certain	obligations	of	Goldman,	Sachs	& Co.	(incorporated	by	reference	to	Exhibit	10.45	to	the	Registrant's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	November	25,	2005).

		10.47 General	Guarantee	Agreement,	dated	March	2,	2010,	made	by	The	Goldman	Sachs	Group,	Inc.	relating	to	the	obligations	of	Goldman	Sachs	Execution	& Clearing,	L.P.	(incorporated	by	reference	to	Exhibit	10.1	to	the	Registrant's	Quarterly	Report	on	Form	10-Q	for	the	period	ended	March	31,	2010).

		10.49 The	Goldman	Sachs	Long-Term	Performance	Incentive	Plan,	dated	December	17,	2010	(incorporated	by	reference	to	the	Registrant's	Current	Report	on Form	8-K,	filed	December	23,	2010).	^†

†							This	exhibit	is	a	management	contract	or	a	compensatory	plan	or	arrangement.

*					This	information	is	furnished	and	not	filed	for	purposes	of	Sections	11	and	12	of	the	Securities	Act	of	1933	and	Section	18	of	the	Securities	Exchange	Act	of	1934.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	Registrant	has	duly	caused	this	report	to	be	signed	on	its	behalf	by	the undersigned,	thereunto	duly	authorized.

		Name: Harvey	M.	Schwartz

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the	Registrant	and	in	the capacities	and	on	the	dates	indicated.

| /s/				M.	Michele	Burns<br>M.	Michele	Burns | Director | February	28,	2013 |
| :--- | :--- | :--- |
| /s/\t\t\t\tGary\tD.\tCohn\nGary\tD.\tCohn | Director | February\t28,\t2013 |
| /s/\t\t\t\tClaes\tDahlbäck\nClaes\tDahlbäck | Director | February\t28,\t2013 |
| /s/\t\t\t\tStephen\tFriedman\nStephen\tFriedman | Director | February\t28,\t2013 |
| /s/\t\t\t\tWilliam\tW.\tGeorge\nWilliam\tW.\tGeorge | Director | February\t28,\t2013 |
| /s/\t\t\t\tJames\tA.\tJohnson\nJames\tA.\tJohnson | Director | February\t28,\t2013 |
| /s/\t\t\t\tLakshmi\tN.\tMittal\nLakshmi\tN.\tMittal | Director | February\t28,\t2013 |
| /s/\t\t\t\tAdebayo\tO.\tOgunlesi\nAdebayo\tO.\tOgunlesi | Director | February\t28,\t2013 |
| /s/\t\t\t\tJames\tJ.\tSchiro\nJames\tJ.\tSchiro | Director | February\t28,\t2013 |
| /s/\t\t\t\tDebora\tL.\tSpar | Director | February\t28,\t2013 |



Question: what is the percentage change in total financial liabilities at fair value in 2012?
Answer: -2.8%