U.K. banks ready plans to cope with potential U.S. default
Some banks in the U.K. are talking with regulators and drawing up internal plans on how they would cope if the U.S. fails to increase its borrowing limit.
Senior bank executives said they have had informal discussions with the Bank of England’s Prudential Regulation Authority in the past few days on how potential disruption in the U.S. bond market could affect their businesses, including the ability to provide dollar funding to clients and post collateral with trading counterparts. A spokesman for the authority declined to comment.
Some of the executives said they have been stockpiling cash and avoiding Treasury bills nearing maturity. Some U.K.-based banks are also scrutinizing internal models to see how they would stand up in the event politicians in Washington fail to avoid a crisis.
The U.S. Treasury Department has pegged Oct. 17 as the date after which the government will be unable to borrow any new funds, as it expects the nation to reach its $16.7 trillion debt limit. On Oct. 31, a $5.9 billion interest payment on debt is due, and on Nov. 1 $50 billion is slated for Medicare, Social Security and military pay. That has led to the prospect the U.S. could technically default on its debt.