Citing people familiar with the matter, the Wall Street Journal has reported that Citigroup Inc and State Street Corp were already gearing up on a possible US government debt default. According to the sources, lenders thinking of strategies to impose limits on using short-term treasury bills as collateral.
The uncertainty brought about by the US government shutdown has caused banks and money market funds to avoid government securities as collateral for loans and for other transactions, according to a Reuters report. In the event of a default, the WSJ reported that Citigroup and State Street had already placed large clearing operations in between the parties to guarantee trades.
The WSJ also reported that Citi has begun to tell some clients that they may not accept treasury bills whose maturity dates fall on October 24 or October 31 as collateral. However, there was no set policy was implemented on the matter. Some State Street units were also said to be determining which treasury bills it would accept as collateral and which ones to restrict.
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