More Signs Wall Street Is Preparing for Debt Ceiling-Related Problems

It was hard not to notice this story by Michael Mackenzie and Aline van Duyn in yesterday’s Financial Times about how Wall Street is planning to deal with the situation if the federal debt ceiling isn’t raised by August 2, the date the U.S. Treasury says the federal government’s cash situation will become critical.

Here’s the money quote:

One strategy, which bank executives only agreed to discuss without attribution due to the political sensitivities related to discussing Treasury debt, is to have more cash on hand to put up as collateral against derivatives and other transactions, decreasing the financial system’s reliance on Treasurys.

“We’re planning to lower our reliance on the use of Treasurys in early August and have more cash on hand as a contingency measure,” said a U.S. bank chief.

The fact that plans are being made isn’t surprising, but the fact that Wall Street sees a need to make and is making contingency plans is definitely newsworthy. Up to now, congressional Republicans (and some commenters here at CG&G) have been denying that Wall Street cares if the debt ceiling isn’t raised, or have been insisting that it will have little effect. Combine this story with my post from last Tuesday and it’s clear that just the opposite is true.

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