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Goldman Sachs' $7 Million Fine by ECB for Inaccurate Credit Risk Reporting

The European Central Bank (ECB) has penalized Goldman Sachs' European division with a fine of 6.63 million euros (approximately $7.3 million). The penalty is for the bank's underreporting of certain corporate credit risks, which resulted in an artificially enhanced portrayal of its balance sheet.

Goldman Sachs building
Goldman Sachs building

Goldman Sachs Responds to ECB's Fine

In response to the fine, Goldman Sachs has stated that the bank has "closely cooperated with the ECB" and has "taken all necessary steps" to rectify the issue under question.

Misclassification of Corporate Exposures Leads to Fine

The ECB, the primary banking supervisor for the eurozone, revealed that Goldman Sachs Bank Europe incorrectly classified some corporate exposures for eight consecutive quarters between 2019 and 2021. The bank assigned a lower risk to these exposures than prescribed by the regulations.

Internal Control Deficiencies at Goldman Sachs

The ECB pointed out that deficiencies in internal controls at Goldman Sachs Bank Europe resulted in the bank's inability to detect this misclassification promptly. The bank reported inaccurately calculated figures to the ECB, effectively hindering the ECB from gaining a comprehensive understanding of its risk profile.

Goldman Sachs Recognizes Regulatory Reporting Obligations

A spokesperson for Goldman Sachs acknowledged the bank's understanding of the "critical importance of regulatory reporting obligations." The bank stated that it had "fully" addressed what it termed as a "legacy issue."

Goldman Sachs Reported Higher Capital Ratios

Risk weights are crucial in determining the capital a bank needs to cover the risk associated with an asset. According to the ECB, Goldman Sachs Bank Europe reportedly attached lower risk weights to some assets, which led the bank to report higher capital ratios than it should have.

Severity of the Breach by Goldman Sachs

The ECB has classified the violation by Goldman Sachs as "severe," placing it in the third most serious category out of five. However, Goldman Sachs retains the right to contest the ECB's decision before the Court of Justice of the European Union.