July 29 (Bloomberg) — The Federal Reserve is preparing guidance for banks in the event the U.S. debt limit isn’t raised and the Treasury Department runs out of money to pay all of its bills, a government official said.
The guidance would cover issues including how payments are made, collateral pledged for loans as well as other supervisory and regulatory matters, said the official, who asked not to be identified because congressional negotiations on the debt limit are still under way.
A credit-rating downgrade of U.S. Treasury securities caused by a failure to lift the $14.3 trillion debt ceiling would affect collateral pledged for loans.
The stalemate, if it extends past the Aug. 2 deadline, would probably create turmoil in financial markets, which could cause banks and other companies to hoard cash, William Poole, former president of the Federal Reserve Bank of St. Louis, said in an interview.
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