US banks and financial regulators are preparing to deal with defaults, know how
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Houston : The war room, the planning of quick relief (bailout packages) and the ringing of the alarm bells of a crisis at ‘home’. These are just some of the ways the biggest banks and financial regulators are preparing for a possible default on US debt. Brian Moynihan, chief executive officer (CEO) of America’s second largest lender Bank of America, said that you hope it doesn’t happen, but hope is not a strategy, so you prepare for it.
Meeting held on May 16 to deal with the crisis
Bank of America CEO Brian Moynihan said the plan to deal with the crisis was a response to the lack of progress in talks between President Joe Biden and Republican lawmakers on raising the $3.14 trillion debt ceiling. Another round of talks took place on May 16, 2023. Without an increase in the debt ceiling, the US cannot borrow more money to finance its bills, all of which have already been approved by Congress. In practical terms it means omission.
what happens if you miss
Brian Moynihan asked What happens if a mistake occurs? This is an open question. But economists, including me, generally expect financial chaos as access to credit shrinks. This then increases the cost of borrowing for companies and consumers exponentially. He said that a serious and long-lasting global economic recession would definitely come, which would further tarnish the reputation of America and the dollar. But how do you prepare for an event that would lead to the worst global recession since the 1930s?
crisis preparedness
Jamie Dimon, who runs America’s largest bank JPMorgan Chase, told Bloomberg about the possible default and how the bank should deal. He is calling a weekly war room to discuss this. The date of June 1 is coming closer due to which there is a possibility of more frequent meetings. On June 1, there may be a cash crisis in front of America. Dimon describes a wide range of economic and financial implications that the group must consider. This includes contracts at home and abroad, clearing houses, exposure to clients.
He said that I don’t think that is going to happen because it becomes destructive, and the closer you are to it, the more panic you get. Banks have not disclosed many details of how they are responding, but we can take some clues from how they have responded to past crises, such as the financial crisis in 2008, 2011 or 2013. All debt in the US is called Treasury Bills or Bonds. In the event of a default, the value of treasuries is likely to decline, which can further weaken the bank’s balance sheet.
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