Banks Prepare for Fiscal Meltdown
Posted at 3:22 p.m. on Oct. 10
“Big banks and investors are preparing contingency plans to deal with the potential impact on the $5tn ‘repo market’ of the US government missing a payment on its bonds,” the Financial Times reports.
“The repo market is a crucial financing area for banks, who post their holdings of Treasury securities as collateral for short-term loans… With the status of short-term Treasury bills being called into question because of the debt ceiling deadlock in Washington, banks are being forced to rapidly reconsider the Treasury securities they can use as collateral.”
“Investors had initially focused on T-bills due to mature on or after October 17, the day the US Treasury department said it would run out of resources to pay its debt. But on Thursday, with Republican leaders proposing a temporary lift in the debt limit, focus quickly shifted to T-bills due to mature in November and December.”