Top bankers urge Obama, Congress to reach deal

AP News
Posted: Jul 28, 2011 4:36 PM
Top bankers urge Obama, Congress to reach deal

The chief executives of the nation's largest financial institutions sent a letter to The White House and to members of the U.S. Congress, urging them come to an agreement this week to raise the nation's borrowing limit.

A deal must be made by Aug. 2 to avoid a default by the U.S. on its debt obligations.

Bank of America Corp.'s Brian Moynihan, JPMorgan Chase & Co.'s Jamie Dimon, and Goldman Sachs Group Inc.'s Lloyd Blankfein and others warned on Thursday that the consequences on not acting would be grave for the economy, the job market, and for America's global economic leadership.

"A default on our nation's obligations, or a downgrade of America's credit rating, would be a tremendous blow to business and investor confidence," the letter said.

Treasurys could not be able to be issued, halting new auctions. Banks buy government debt in the form of Treasurys at auction to sell to investors, essentially acting as a middleman. They receive fees for handling the transactions.

Banks also hold Treasurys as assets they can easily sell. If their value falls, so does a bank's capital. That could force financial institutions to hold more cash, which in turn means less money available to lend to consumers and businesses.

Currently, U.S. banks hold a total of $1.67 trillion in Treasuries and mortgage-backed securities combined, according to the Federal Reserve.