{"id":1931180,"date":"2023-05-15T11:56:54","date_gmt":"2023-05-15T15:56:54","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/explainer-how-wall-street-is-preparing-for-possible-us-debt-default\/"},"modified":"2023-05-15T12:02:35","modified_gmt":"2023-05-15T16:02:35","slug":"explainer-how-wall-street-is-preparing-for-possible-us-debt-default","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/explainer-how-wall-street-is-preparing-for-possible-us-debt-default\/","title":{"rendered":"How Wall Street is getting ready for a potential US debt default."},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"float:left\"><div class=\"counts mashsbcount\">24<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Fexplainer-how-wall-street-is-preparing-for-possible-us-debt-default%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1931180&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><h2>Wall Street Braces for Fallout from Potential U.S. Default<\/h2>\n<p>As talks over raising the U.S. government\u2019s $31.4 trillion debt ceiling intensify, Wall Street banks and asset managers have begun preparing for the potential fallout from a default. The financial industry has prepared for such a crisis before, most recently in September 2021. But this time, the relatively short time frame for reaching a compromise has bankers on edge, said one senior industry official.<\/p>\n<p>Citigroup CEO Jane Fraser said this debate on the debt ceiling is \u201cmore worrying\u201d than previous ones. JPMorgan Chase &#038; CO CEO Jamie Dimon said the bank is <a href=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/biggest-fear-among-us-business-leaders-is-catastrophic-debt-default-white-house-economic-adviser\/\" title=\"US business leaders' biggest fear is a catastrophic debt default, according to a White House economic adviser.\">convening weekly meetings<\/a> on the implications.<\/p>\n<h3>What Would Happen if the U.S. Defaulted?<\/h3>\n<p>U.S. government bonds underpin the <a href=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/dogecoin-rallies-after-launching-on-coinebase-pro-dogefather-elon-musk-retweets-inevitable-meme\/\" title=\"Dogecoin Rallies After Launching On Coinebase Pro, \u2018Dogefather\u2019 Elon Musk Retweets \u2018Inevitable\u2019 Meme\">global financial system<\/a>, so it is difficult to fully gauge the damage a default would create, but executives expect massive volatility across equity, debt, and other markets. The ability to trade in and out of Treasury positions in the secondary market would be severely impaired.<\/p>\n<p>Wall Street executives who have advised the Treasury\u2019s debt operations warned that Treasury market dysfunction would quickly spread to the derivative, mortgage, and commodity markets, as investors would question the validity of Treasuries widely used as collateral for securing trades and loans. Financial institutions could ask counterparties to replace the bonds affected by missed payments, said analysts. Even a short breach of the debt limit could lead to a spike in interest rates, a plunge in equity prices, and covenant breaches in loan documentation and leverage agreements. Short-term funding markets would likely freeze up as well, Moody\u2019s Analytics said.<\/p>\n<h3>How Are Institutions Preparing?<\/h3>\n<p>Banks, brokers, and trading platforms are prepping for disruption to the Treasury market, as well as broader volatility. This generally includes game-planning how payments on Treasury securities would be handled; how critical funding markets would react; ensuring sufficient technology, staffing capacity, and cash to handle high trading volumes; and checking the potential impact on contracts with clients.<\/p>\n<p>Big bond investors have cautioned that maintaining high levels of liquidity was important to <a href=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/explainer-how-wall-street-is-preparing-for-possible-us-debt-default\/\" title=\"How Wall Street is getting ready for a potential US debt default.\">withstand potential violent asset price moves<\/a> and to avoid having to sell at the worst possible time. Bond trading platform Tradeweb said it was in discussions with clients, industry groups, and other market participants about contingency plans.<\/p>\n<h3>What Scenarios Are Being Considered?<\/h3>\n<p>The Securities Industry and Financial Markets Association (SIFMA), a <a href=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/europeans-burning-trees-for-energy-as-green-policies-batter-countries\/\" title=\"Europeans Burning Trees for Energy as Green Policies Batter Countries\">leading industry group<\/a>, has a playbook detailing how Treasury market stakeholders \u2013 the Federal Reserve Bank of New York, the Fixed Income Clearing Corporation (FICC), clearing banks, and Treasuries dealers \u2013 would communicate ahead of and during the days of potential missed Treasuries payments.<\/p>\n<p>SIFMA has considered several scenarios. The more likely would see the Treasury buy time to pay back bondholders by announcing ahead of a payment that it would be rolling those maturing securities over, extending them one day at a time. That would allow the market to continue functioning, but interest would likely not accrue for the delayed payment.<\/p>\n<p>In the most disruptive scenario, the Treasury fails to pay both principal and coupon and does not extend maturities. The unpaid bonds could no longer trade and would no longer be transferable on the Fedwire Securities Service, which is used to hold, transfer, and settle Treasuries.<\/p>\n<p>Each scenario would likely lead to significant operational problems and require manual daily adjustments in trading and settlement processes. \u201cIt is difficult because this is unprecedented, but all we\u2019re trying to do is make sure we develop a plan with our members to help them navigate through what would be a disruptive situation,\u201d said Rob Toomey, SIFMA\u2019s managing director and <a href=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/biden-taps-union-ally-for-board-of-federal-labor-arbiter\/\" title=\"Biden Taps Union Ally for Board of Federal Labor Arbiter\">associate general counsel<\/a> for capital markets.<\/p>\n<p>The Depository Trust &#038; Clearing Corporation, which owns FICC, said it was monitoring the situation and has modeled a variety of scenarios based on SIFMA\u2019s playbook. \u201cWe are also working with our industry partners, regulators, and participants to ensure activities are coordinated,\u201d it said.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By Davide Barbuscia and Pete Schroeder NEW YORK\/WASHINGTON (Reuters) \u2013 As talks over raising the U.S. government\u2019s $31.4 trillion debt ceiling intensify, Wall Street banks and asset managers have begun preparing for fallout from a potential default. Advertisement The financial industry has prepared for such a crisis before, most recently in September 2021. But this<\/p>\n","protected":false},"author":66,"featured_media":1931181,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","fifu_image_alt":"","footnotes":""},"categories":[542],"tags":[5487,15651,4238,5066,4355,4354],"class_list":["post-1931180","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-oann","tag-debt","tag-default","tag-potential","tag-ready","tag-street","tag-wall"],"fifu_image_url":"https:\/\/cndimages.nyc3.digitaloceanspaces.com\/breaking-news\/wp-content\/uploads\/2021\/01\/IMG_2758-scaled-1.jpg","_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1931180","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/66"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1931180"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1931180\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1931181"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1931180"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1931180"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1931180"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}