Regulation and Capital Adequacy

9 Months Ended

Sep. 30, 2020

Text Block [Abstract]

Regulation and Capital Adequacy

Note 20.

Regulation and Capital Adequacy

The FRB is the primary regulator of Group Inc., a BHC under the U.S. Bank Holding Company Act of 1956 and a financial holding company under amendments to this Act. The firm is subject to consolidated regulatory capital requirements which are calculated in accordance with the regulations of the FRB (Capital Framework).

The capital requirements are expressed as risk-based capital and leverage ratios that compare measures of regulatory capital to risk-weighted assets (RWAs), average assets and off-balance sheet exposures. Failure to comply with these capital requirements could result in restrictions being imposed by the firm’s regulators and could limit the firm’s ability to repurchase shares, pay dividends and make certain discretionary compensation payments. The firm’s capital levels are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors. Furthermore, certain of the firm’s subsidiaries are subject to separate regulations and capital requirements.

Capital Framework

The regulations under the Capital Framework are largely based on the Basel Committee on Banking Supervision’s (Basel Committee) capital framework for strengthening international capital standards (Basel III) and also implement certain provisions of the Dodd-Frank Act. Under the Capital Framework, the firm is an “Advanced approach” banking organization and has been designated as a global systemically important bank (G-SIB).

The capital requirements calculated in accordance with the Capital Framework include the minimum risk-based capital and leverage ratios. In addition, the risk-based capital requirements include the capital conservation buffer, countercyclical capital buffer and the G-SIB surcharge, all of which must consist entirely of capital that qualifies as Common Equity Tier 1 (CET1) capital.

The firm calculates its CET1 capital, Tier 1 capital and Total capital ratios in accordance with (i) the Standardized approach and market risk rules set out in the Capital Framework (together, the Standardized Capital Rules) and (ii) the Advanced approach and market risk rules set out in the Capital Framework (together, the Advanced Capital Rules). The lower of each risk-based capital ratio calculated in (i) and (ii) is the ratio against which the firm’s compliance with its risk-based capital requirements is assessed.

Under the Capital Framework, the firm is also subject to leverage requirements which consist of a minimum Tier 1 leverage ratio and a minimum supplementary leverage ratio (SLR), as well as the SLR buffer.

Consolidated Regulatory Risk-Based Capital and Leverage Ratios

The table below presents the risk-based capital and leverage requirements as of both September 2020 and December 2019.

	Requirements
Risk-based capital requirements
CET1 capital ratio	9.5%
Tier 1 capital ratio	11.0%
Total capital ratio	13.0%
Leverage requirements
Tier 1 leverage ratio	4.0%
SLR	5.0%

Beginning on October 1, 2020, the Standardized capital ratio requirements include the stressed capital buffer (SCB), which has replaced the capital conservation buffer. The SCB is determined by the FRB based on institution-specific Comprehensive Capital Analysis and Review results. As a result, beginning on October 1, 2020, the firm’s Standardized CET1 capital ratio requirement is 13.6%, which includes a minimum of 4.5%, the SCB of 6.6%, the G-SIB surcharge of 2.5% (Method 2) and the countercyclical capital buffer, which the FRB has set to zero percent. In addition, beginning on October 1, 2020, the firm’s Standardized Tier 1 capital ratio requirement is 15.1% and the Standardized Total capital ratio requirement is 17.1%.

In the table above:

• As of both September 2020 and December 2019, the CET1 capital ratio requirement includes a minimum of 4.5%, the Tier 1 capital ratio requirement includes a minimum of 6.0% and the Total capital ratio requirement includes a minimum of 8.0%. The requirements also include the capital conservation buffer of 2.5%, the G-SIB surcharge of 2.5% (Method 2) and the countercyclical capital buffer, which the FRB has set to zero percent.

• The G-SIB surcharge is updated annually based on financial data from the prior year and is generally applicable for the following year. The G-SIB surcharge is calculated using two methodologies, the higher of which is reflected in the firm’s risk-based capital requirements. The first calculation (Method 1) is based on the Basel Committee’s methodology which, among other factors, relies upon measures of the size, activity and complexity of each G-SIB. The second calculation (Method 2) uses similar inputs but includes a measure of reliance on short-term wholesale funding.

• The Tier 1 leverage ratio requirement is a minimum of 4%. The SLR requirement of 5% includes a minimum of 3% and a 2% buffer applicable to G-SIBs.

The table below presents information about risk-based capital ratios.

$ in millions	Standardized	Advanced
As of September 2020
CET1 capital	$  77,503	$  77,503
Tier 1 capital	$  88,566	$  88,566
Tier 2 capital	$  16,018	$  14,067
Total capital	$104,584	$102,633
RWAs	$534,557	$599,626
CET1 capital ratio	14.5%	12.9%
Tier 1 capital ratio	16.6%	14.8%
Total capital ratio	19.6%	17.1%
As of December 2019
CET1 capital	$  74,850	$  74,850
Tier 1 capital	$  85,440	$  85,440
Tier 2 capital	$  14,925	$  13,473
Total capital	$100,365	$  98,913
RWAs	$563,575	$544,653
CET1 capital ratio	13.3%	13.7%
Tier 1 capital ratio	15.2%	15.7%
Total capital ratio	17.8%	18.2%

In the table above:

• The lower of the Standardized or Advanced ratio is the ratio against which the firm’s compliance with the capital requirements is assessed under the risk-based Capital Rules, and therefore, the Advanced ratios applied to the firm as of September 2020 and the Standardized ratios applied to the firm as of December 2019.

• As permitted by the FRB, the firm has elected to temporarily delay the estimated effects of adopting CECL on regulatory capital until January 2022 and to subsequently phase-in the effects through January 2025. In addition, during 2020 and 2021, the firm has elected to increase regulatory capital by 25% of the increase in the allowance for credit losses since January 1, 2020, as permitted by the rules issued by the FRB. The impact of this increase will also be phased in over the three-year transition period. Reflecting the full impact of CECL as of September 2020 would not have had a material impact on the firm’s Advanced risk-based capital ratios.

The table below presents information about leverage ratios.

	For the Three Months Ended or as of
$ in millions		September 2020		December 2019
Tier 1 capital		$     88,566		$     85,440
Average total assets		$1,140,901		$   983,909
Deductions from Tier 1 capital		(5,087	)	(5,275	)
Average adjusted total assets		1,135,814		978,634
Impact of SLR temporary amendment		(198,954	)	–
Average off-balance sheet exposures		365,008		396,833
Total leverage exposure		$1,301,868		$1,375,467
Tier 1 leverage ratio		7.8%		8.7%
SLR		6.8%		6.2%

In the table above:

• Average total assets represents the average daily assets for the quarter, and for the three months ended September 2020, reflected the impact of CECL transition.

• Impact of SLR temporary amendment represents the exclusion of average holdings of U.S. Treasury securities and average deposits at the Federal Reserve as permitted by the FRB. The impact of this temporary amendment was an increase in the firm’s SLR by approximately 0.9 percentage points for the three months ended September 2020. This temporary amendment is effective through March 31, 2021.

• Average off-balance sheet exposures represents the monthly average and consists of derivatives, securities financing transactions, commitments and guarantees.

• Tier 1 leverage ratio is calculated as Tier 1 capital divided by average adjusted total assets.

• SLR is calculated as Tier 1 capital divided by total leverage exposure.

Risk-Based Capital. The table below presents information about risk-based capital.

	As of
$ in millions		September 2020		December 2019
Common shareholders’ equity		$  81,447		$  79,062
Impact of CECL transition		1,100		–
Deduction for goodwill		(3,644	)	(3,529	)
Deduction for identifiable intangible assets		(599	)	(604	)
Other adjustments		(801	)	(79	)
CET1 capital		77,503		74,850
Preferred stock		11,203		11,203
Deduction for investments in covered funds		(129	)	(610	)
Other adjustments		(11	)	(3	)
Tier 1 capital		$  88,566		$  85,440
Standardized Tier 2 and Total capital
Tier 1 capital		$  88,566		$  85,440
Qualifying subordinated debt		12,872		12,847
Junior subordinated debt		188		284
Allowance for credit losses		3,019		1,802
Other adjustments		(61	)	(8	)
Standardized Tier 2 capital		16,018		14,925
Standardized Total capital		$104,584		$100,365
Advanced Tier 2 and Total capital
Tier 1 capital		$  88,566		$  85,440
Standardized Tier 2 capital		16,018		14,925
Allowance for credit losses		(3,019	)	(1,802	)
Other adjustments		1,068		350
Advanced Tier 2 capital		14,067		13,473
Advanced Total capital		$102,633		$  98,913

In the table above:

• Impact of CECL transition represents the impact of adoption as of January 1, 2020 and the impact of increasing regulatory capital by 25% of the increase in allowance for credit losses since January 1, 2020. The allowance for credit losses within Standardized and Advanced Tier 2 capital also reflects the impact of these adjustments.

• Deduction for goodwill was net of deferred tax liabilities of $689 million as of September 2020 and $667 million as of December 2019.

• Deduction for identifiable intangible assets was net of deferred tax liabilities of $33 million as of September 2020 and $37 million as of December 2019.

• Deduction for investments in covered funds represents the firm’s aggregate investments in applicable covered funds, excluding investments that are subject to an extended conformance period. See Note 8 for further information about the Volcker Rule.

• Other adjustments within CET1 capital and Tier 1 capital primarily include credit valuation adjustments on derivative liabilities, the overfunded portion of the firm’s defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed deferred tax assets, debt valuation adjustments and other required credit risk-based deductions. Other adjustments within Advanced Tier 2 capital include eligible credit reserves.

• Qualifying subordinated debt is subordinated debt issued by Group Inc. with an original maturity of five years or greater. The outstanding amount of subordinated debt qualifying for Tier 2 capital is reduced upon reaching a remaining maturity of five years. See Note 14 for further information about the firm’s subordinated debt.

• Junior subordinated debt is debt issued to a Trust. As of September 2020, 20% of this debt was included in Tier 2 capital and 80% was phased out of regulatory capital. As of December 2019, 30% of this debt was included in Tier 2 capital and 70% was phased out of regulatory capital. Junior subordinated debt is reduced by the amount of Trust Preferred securities purchased by the firm and will be fully phased out of Tier 2 capital by 2022 at a rate of 10% per year. See Note 14 for further information about the firm’s junior subordinated debt and Trust Preferred securities.

The table below presents changes in CET1 capital, Tier 1 capital and Tier 2 capital.

$ in millions	Standardized		Advanced
Nine Months Ended September 2020
CET1 capital
Beginning balance	$  74,850		$  74,850
Change in:
Common shareholders’ equity	2,385		2,385
Impact of CECL transition	1,100		1,100
Deduction for goodwill	(115	)	(115	)
Deduction for identifiable intangible assets	5		5
Other adjustments	(722	)	(722	)
Ending balance	$  77,503		$  77,503
Tier 1 capital
Beginning balance	$  85,440		$  85,440
Change in:
CET1 capital	2,653		2,653
Deduction for investments in covered funds	481		481
Other adjustments	(8	)	(8	)
Ending balance	88,566		88,566
Tier 2 capital
Beginning balance	14,925		13,473
Change in:
Qualifying subordinated debt	25		25
Junior subordinated debt	(96	)	(96	)
Allowance for credit losses	1,217		–
Other adjustments	(53	)	665
Ending balance	16,018		14,067
Total capital	$104,584		$102,633
Year Ended December 2019
CET1 capital
Beginning balance	$  73,116		$  73,116
Change in:
Common shareholders’ equity	80		80
Deduction for goodwill	(432	)	(432	)
Deduction for identifiable intangible assets	(307	)	(307	)
Other adjustments	2,393		2,393
Ending balance	$  74,850		$  74,850
Tier 1 capital
Beginning balance	$  83,702		$  83,702
Change in:
CET1 capital	1,734		1,734
Deduction for investments in covered funds	5		5
Other adjustments	(1	)	(1	)
Ending balance	85,440		85,440
Tier 2 capital
Beginning balance	14,926		13,743
Change in:
Qualifying subordinated debt	(300	)	(300	)
Junior subordinated debt	(158	)	(158	)
Allowance for credit losses	449		–
Other adjustments	8		188
Ending balance	14,925		13,473
Total capital	$100,365		$  98,913

RWAs. RWAs are calculated in accordance with both the Standardized and Advanced Capital Rules.

Credit Risk

Credit RWAs are calculated based on measures of exposure, which are then risk weighted under the Standardized and Advanced Capital Rules:

• The Standardized Capital Rules apply prescribed risk-weights, which depend largely on the type of counterparty. The exposure measure for derivatives and securities financing transactions are based on specific formulas which take certain factors into consideration.

• Under the Advanced Capital Rules, the firm computes risk-weights for wholesale and retail credit exposures in accordance with the Advanced Internal Ratings-Based approach. The exposure measures for derivatives and securities financing transactions are computed utilizing internal models.

• For both Standardized and Advanced credit RWAs, the risk-weights for securitizations and equities are based on specific required formulaic approaches.

Market Risk

RWAs for market risk in accordance with the Standardized and Advanced Capital Rules are generally consistent. Market RWAs are calculated based on measures of exposure which include the following:

• Value-at-Risk (VaR) is the potential loss in value of trading assets and liabilities, as well as certain investments, loans, and other financial assets and liabilities accounted for at fair value, due to adverse market movements over a defined time horizon with a specified confidence level.

For both risk management purposes and regulatory capital calculations, the firm uses a single VaR model which captures risks, including those related to interest rates, equity prices, currency rates and commodity prices. However, VaR used for risk management purposes differs from VaR used for regulatory capital requirements (regulatory VaR) due to differences in time horizons, confidence levels and the scope of positions on which VaR is calculated. For risk management purposes, a 95% one-day VaR is used, whereas for regulatory capital requirements, a 99% 10-day VaR is used to determine Market RWAs and a 99% one-day VaR is used to determine regulatory VaR exceptions. In addition, the daily net revenues used to determine risk management VaR exceptions (i.e., comparing the daily net revenues to the VaR measure calculated as of the end of the prior business day) include intraday activity, whereas the Capital Framework requires that intraday activity be excluded from daily net revenues when calculating regulatory VaR exceptions. Intraday activity includes bid/offer net revenues, which are more likely than not to be positive by their nature. As a result, there may be differences in the number of VaR exceptions and the amount of daily net revenues calculated for regulatory VaR compared to the amounts calculated for risk management VaR.

The firm’s positional losses observed on a single day exceeded its 99% one-day regulatory VaR on six occasions during the nine months ended September 2020 (all of which occurred during March 2020) and exceeded its 99% one-day regulatory VaR on one occasion during the year ended December 2019. As permitted by the FRB, the firm has permanently excluded the six exceptions that occurred in March 2020 in determining the firm’s VaR multiplier used to calculate Market RWAs;

• Stressed VaR is the potential loss in value of trading assets and liabilities, as well as certain investments, loans, and other financial assets and liabilities accounted for at fair value, during a period of significant market stress;

• Incremental risk is the potential loss in value of non-securitized positions due to the default or credit migration of issuers of financial instruments over a one-year time horizon;

• Comprehensive risk is the potential loss in value, due to price risk and defaults, within the firm’s credit correlation positions; and

• Specific risk is the risk of loss on a position that could result from factors other than broad market movements, including event risk, default risk and idiosyncratic risk. The standardized measurement method is used to determine specific risk RWAs, by applying supervisory defined risk-weighting factors after applicable netting is performed.

Operational Risk

Operational RWAs are only required to be included under the Advanced Capital Rules. The firm utilizes an internal risk-based model to quantify Operational RWAs.

The table below presents information about RWAs.

$ in millions	Standardized	Advanced
As of September 2020
Credit RWAs
Derivatives	$119,176	$112,940
Commitments, guarantees and loans	163,098	136,659
Securities financing transactions	56,441	9,883
Equity investments	45,142	47,305
Other	70,382	83,971
Total Credit RWAs	454,239	390,758
Market RWAs
Regulatory VaR	18,322	18,322
Stressed VaR	38,885	38,885
Incremental risk	5,385	5,385
Comprehensive risk	1,648	1,648
Specific risk	16,078	16,078
Total Market RWAs	80,318	80,318
Total Operational RWAs	–	128,550
Total RWAs	$534,557	$599,626
As of December 2019
Credit RWAs
Derivatives	$120,906	$  72,631
Commitments, guarantees and loans	179,740	134,456
Securities financing transactions	65,867	13,834
Equity investments	56,814	61,892
Other	75,660	78,266
Total Credit RWAs	498,987	361,079
Market RWAs
Regulatory VaR	8,933	8,933
Stressed VaR	30,911	30,911
Incremental risk	4,308	4,308
Comprehensive risk	1,393	1,191
Specific risk	19,043	19,043
Total Market RWAs	64,588	64,386
Total Operational RWAs	–	119,188
Total RWAs	$563,575	$544,653

In the table above:

• Securities financing transactions represents resale and repurchase agreements and securities borrowed and loaned transactions.

• Other includes receivables, certain debt securities, cash and cash equivalents and other assets.

The table below presents changes in RWAs.

$ in millions	Standardized		Advanced
Nine Months Ended September 2020
RWAs
Beginning balance	$563,575		$544,653
Credit RWAs
Change in:
Derivatives	(1,730	)	40,309
Commitments, guarantees and loans	(16,642	)	2,203
Securities financing transactions	(9,426	)	(3,951	)
Equity investments	(11,672	)	(14,587	)
Other	(5,278	)	5,705
Change in Credit RWAs	(44,748	)	29,679
Market RWAs
Change in:
Regulatory VaR	9,389		9,389
Stressed VaR	7,974		7,974
Incremental risk	1,077		1,077
Comprehensive risk	255		457
Specific risk	(2,965	)	(2,965	)
Change in Market RWAs	15,730		15,932
Change in Operational RWAs	–		9,362
Ending balance	$534,557		$599,626
Year Ended December 2019
RWAs
Beginning balance	$547,910		$558,111
Credit RWAs
Change in:
Derivatives	(1,605	)	(9,670	)
Commitments, guarantees and loans	19,435		(8,900	)
Securities financing transactions	(496	)	(4,425	)
Equity investments	3,251		6,738
Other	5,064		8,585
Change in Credit RWAs	25,649		(7,672	)
Market RWAs
Change in:
Regulatory VaR	1,151		1,151
Stressed VaR	2,959		2,959
Incremental risk	(6,161	)	(6,161	)
Comprehensive risk	(1,377	)	(1,579	)
Specific risk	(6,556	)	(6,556	)
Change in Market RWAs	(9,984	)	(10,186	)
Change in Operational RWAs	–		4,400
Ending balance	$563,575		$544,653

RWAs Rollforward Commentary

Nine Months Ended September 2020. Standardized Credit RWAs as of September 2020 decreased by $44.75 billion compared with December 2019, primarily reflecting a decrease in commitments, guarantees and loans, principally due to reduced lending exposures, a decrease in equity investments, principally due to the sale of certain equity positions, and a decrease in securities financing transactions, principally due to reduced funding exposures. Standardized Market RWAs as of September 2020 increased by $15.73 billion compared with December 2019, primarily reflecting increases in regulatory VaR and stressed VaR, principally due to increased market volatility.

Advanced Credit RWAs as of September 2020 increased by $29.68 billion compared with December 2019, primarily reflecting an increase in derivatives, principally due to the impact of higher levels of volatility and counterparty credit risk. This increase was partially offset by a decrease in equity investments, principally due to the sale of certain equity positions. Advanced Market RWAs as of September 2020 increased by $15.93 billion compared with December 2019, primarily reflecting increases in regulatory VaR and stressed VaR, principally due to increased market volatility. Advanced Operational RWAs as of September 2020 increased by $9.36 billion compared with December 2019. The vast majority of this increase was associated with litigation and regulatory proceedings.

Year Ended December 2019. Standardized Credit RWAs as of December 2019 increased by $25.65 billion compared with December 2018, primarily reflecting an increase in commitments, guarantees and loans, principally due to an increase in lending activity, and an increase in other credit RWAs, principally due to the recognition of operating lease right-of-use assets upon adoption of ASU No. 2016-02 and an increase in corporate debt exposures. Standardized Market RWAs as of December 2019 decreased by $9.98 billion compared with December 2018, primarily reflecting a decrease in specific risk, principally due to reduced exposures, and a decrease in incremental risk, principally due to reduced exposures and changes in risk measurements.

Advanced Credit RWAs as of December 2019 decreased by $7.67 billion compared with December 2018. Beginning in the fourth quarter of 2019, the firm made changes to the calculation of the loss given default for certain wholesale exposures which resulted in a decrease in credit RWAs, primarily in commitments, guarantees and loans and derivatives. This decrease was partially offset by an increase in other credit RWAs, principally due to the recognition of operating lease right-of-use assets upon adoption of ASU No. 2016-02 and an increase in corporate debt exposures. Advanced Market RWAs as of December 2019 decreased by $10.19 billion compared with December 2018, primarily reflecting a decrease in specific risk, principally due to reduced exposures, and a decrease in incremental risk, principally due to reduced exposures and changes in risk measurements. Advanced Operational RWAs as of December 2019 increased by $4.40 billion compared with December 2018, associated with litigation and regulatory proceedings.

Bank Subsidiaries

Regulatory Capital Ratios. GS Bank USA, the firm’s primary U.S. bank subsidiary, is an FDIC-insured, New York State-chartered bank and a member of the Federal Reserve System, is supervised and regulated by the FRB, the FDIC, the New York State Department of Financial Services (NYDFS) and the Consumer Financial Protection Bureau, and is subject to regulatory capital requirements that are calculated in substantially the same manner as those for BHCs. To assess the adequacy of its capital, GS Bank USA calculates its risk-based capital and leverage ratios in accordance with the regulatory capital requirements applicable to state member banks, which are based on the Capital Framework. GS Bank USA is an Advanced approach banking organization under the Capital Framework.

Similar to the firm, GS Bank USA is required to calculate the CET1 capital, Tier 1 capital and Total capital ratios in accordance with both the Standardized and Advanced Capital Rules. The lower of each risk-based capital ratio under the Standardized and Advanced Capital Rules is the ratio against which GS Bank USA’s compliance with its risk-based capital requirements is assessed. In addition, under the regulatory framework for prompt corrective action applicable to GS Bank USA, in order to meet the quantitative requirements for a “well-capitalized” depository institution, GS Bank USA must also meet the “well-capitalized” requirements in the table below. GS Bank USA’s capital levels and prompt corrective action classification are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors. Failure to comply with the capital requirements, including a breach of the buffers described below, could result in restrictions being imposed by the regulators.

The table below presents GS Bank USA’s risk-based capital, leverage and “well-capitalized” requirements.

	Requirements	“Well-capitalized” Requirements
Risk-based capital requirements
CET1 capital ratio	7.0%	6.5%
Tier 1 capital ratio	8.5%	8.0%
Total capital ratio	10.5%	10.0%
Leverage requirements
Tier 1 leverage ratio	4.0%	5.0%
SLR	3.0%	6.0%

In the table above:

• The CET1 capital ratio requirement includes a minimum of 4.5%, the Tier 1 capital ratio requirement includes a minimum of 6.0% and the Total capital ratio requirement includes a minimum of 8.0%. The requirements also include the capital conservation buffer of 2.5% and the countercyclical capital buffer, which the FRB has set to zero percent.

• The “well-capitalized” requirements are the binding requirements for leverage ratios.

The table below presents information about GS Bank USA’s risk-based capital ratios.

$ in millions	Standardized	Advanced
As of September 2020
CET1 capital	$  30,441	$  30,441
Tier 1 capital	$  30,441	$  30,441
Tier 2 capital	$    6,235	$    4,852
Total capital	$  36,676	$  35,293
RWAs	$247,064	$160,261
CET1 capital ratio	12.3%	19.0%
Tier 1 capital ratio	12.3%	19.0%
Total capital ratio	14.8%	22.0%
As of December 2019
CET1 capital	$  29,176	$  29,176
Tier 1 capital	$  29,176	$  29,176
Tier 2 capital	$    5,293	$    4,486
Total capital	$  34,469	$  33,662
RWAs	$258,541	$135,596
CET1 capital ratio	11.3%	21.5%
Tier 1 capital ratio	11.3%	21.5%
Total capital ratio	13.3%	24.8%

In the table above:

• The lower of the Standardized or Advanced ratio is the ratio against which GS Bank USA’s compliance with the capital requirements is assessed under the risk-based Capital Rules, and therefore, the Standardized ratios applied to GS Bank USA as of both September 2020 and December 2019.

• As permitted by the FRB, GS Bank USA has elected to temporarily delay the estimated effects of adopting CECL on regulatory capital until January 2022 and to subsequently phase-in the effects through January 2025. In addition, during 2020 and 2021, GS Bank USA has elected to increase regulatory capital by 25% of the increase in the allowance for credit losses since January 1, 2020, as permitted by the rules issued by the FRB. The impact of this increase will also be phased in over the three-year transition period. Reflecting the full impact of CECL as of September 2020 would not have had a material impact on GS Bank USA’s Standardized risk-based capital ratios.

• The Standardized risk-based capital ratios increased from December 2019 to September 2020, reflecting a decrease in Credit RWAs and an increase in capital, principally due to net earnings, partially offset by an increase in Market RWAs. The Advanced risk-based capital ratios decreased from December 2019 to September 2020, reflecting increases in both Credit and Market RWAs, partially offset by an increase in capital, principally due to net earnings.

The table below presents information about GS Bank USA’s leverage ratios.

	For the Three Months Ended or as of
$ in millions		September 2020	December 2019
Tier 1 capital		$  30,441	$  29,176
Average adjusted total assets		$288,159	$220,974
Total leverage exposure		$342,230	$413,852
Tier 1 leverage ratio		10.6%	13.2%
SLR		8.9%	7.0%

In the table above:

• Average adjusted total assets represents the average daily assets for the quarter adjusted for deductions from Tier 1 capital, and for the three months ended September 2020, reflected the impact of CECL transition.

• Total leverage exposure, for the three months ended September 2020, excluded average holdings of U.S. Treasury securities and average deposits at the Federal Reserve as permitted by the FRB. The impact of this temporary amendment was an increase in GS Bank USA’s SLR by approximately 2.4 percentage points for the three months ended September 2020. This temporary amendment is effective through March 31, 2021.

• Tier 1 leverage ratio is calculated as Tier 1 capital divided by average adjusted total assets.

• SLR is calculated as Tier 1 capital divided by total leverage exposure.

The firm’s principal non-U.S. bank subsidiary, GSIB, is a wholly-owned credit institution, regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) and is subject to regulatory capital requirements. As of both September 2020 and December 2019, GSIB was in compliance with its regulatory capital requirements.

Other. The deposits of GS Bank USA are insured by the FDIC to the extent provided by law. The FRB requires that GS Bank USA maintain cash reserves with the Federal Reserve. The amount deposited by GS Bank USA at the Federal Reserve was $63.69 billion as of September 2020 and $50.55 billion as of December 2019, which exceeded required reserve amounts by $63.69 billion as of September 2020 (as the FRB reduced reserve requirement ratios to zero percent in 2020) and $50.29 billion as of December 2019.

Restrictions on Payments

Group Inc. may be limited in its ability to access capital held at certain subsidiaries as a result of regulatory, tax or other constraints. These limitations include provisions of applicable law and regulations and other regulatory restrictions that limit the ability of those subsidiaries to declare and pay dividends without prior regulatory approval. As a result of GS Bank USA’s election to exclude holdings of U.S. Treasury securities and deposits at the Federal Reserve from its total leverage exposure, any dividend by GS Bank USA during the period from July 1, 2020 through March 31, 2021 is subject to the prior approval of the FRB. Furthermore, the amount of dividends that may be paid by GS Bank USA are limited to the lesser of the amounts calculated under a recent earnings test and an undivided profits test. The FRB, the FDIC and the NYDFS have authority to prohibit or to limit the payment of dividends by the banking organizations they supervise (including GS Bank USA) if, in the 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, 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.

Group Inc.’s equity investment in subsidiaries was $99.52 billion as of September 2020 and $95.68 billion as of December 2019, of which Group Inc. was required to maintain $60.88 billion as of September 2020 and $57.58 billion as of December 2019, of minimum equity capital in its regulated subsidiaries in order to satisfy the regulatory requirements of such subsidiaries.

Group Inc.’s capital invested in certain non-U.S. subsidiaries is exposed to foreign exchange risk, substantially all of which is managed through a combination of derivatives and non-U.S. denominated debt. See Note 7 for information about the firm’s net investment hedges used to hedge this risk.