Goldman CFO praises Volcker Rule extension for avoiding ‘fire sales’

During the year, Goldman Sachs trimmed about $1 billion from funds subject to the Volcker Rule, which limits financial institutions to 3 percent or less of balance sheet capital in private equity funds and other pools. The rule, part of the 2010 Dodd-Frank financial reform act, came about after the financial crisis to prevent banks from investing too heavily off their balance sheets. The Federal Reserve on Dec.18 pushed out the deadline for two years for big banks to comply with the rule.

“One good thing in the quarter that you saw was that regulators finalized the extension of the Volcker Rule,” Schwartz told analysts on the firm’s fourth-quarter conference call with Wall Street on Jan. 16. “There will be two one-year extensions there. So that was good to see. I think it was thoughtful by the regulators because … otherwise we might have seen fire sales across the marketplace.”

The investment bank, which runs one of the largest private equity businesses in the world, began 2014 by harvesting from its roughly $9 billion in funds subject to the rule. The form of those sales, whether through IPOs or exits to other companies, is not clear. The investment bank eased back on sales of its Volcker Rule funds in the second half of 2014, since it ended the year at the same $8 billion level that it held on June 30.

“There was harvesting but that was offset by some gains,” Schwartz said.

All told, Goldman’s total Investing & Lending balance sheet totaled $76 billion, which included $4 billion of public equity, $18 billion of private equity and about $50 billion in debt.