J. D. Heyes
Oct 10, 2013
As the government shutdown grinds on with no end in sight, as President Obama continues to vow not to negotiate with House Republicans over raising the debt ceiling limit and funding Obamacare, many of the nation’s biggest banks are stockpiling cash for ATM machines in case the public becomes panicked over a potential U.S. default.
Per London’s Telegraph newspaper:
Major banks have increased the amount of funds by around a third, and are holding daily meetings in sealed rooms to map out their contingency plans, according to well-placed sources.
In some cases, they are discussing the possibility of extending free credit to customers who do not receive the Social Security payments they would normally rely on, because of the ongoing services blackout.
Would a shutdown cause a run on cash at the banks?
The U.S. government shut down, partially, Oct. 1, after Obama and House Republicans failed to come to an agreement over a budget and continuing resolution that would have kept some services running and many government workers at their jobs. As it stands, the shutdown is only affecting about 17 percent of the federal government’s traditional functions.
It’s the first federal government shutdown in 17 years; the last one occurred during Bill Clinton’s first term.
At issue is the funding of Obamacare, which Republicans in the House are seeking to block, as well as whether or not to raise the nation’s borrowing limit – the so-called debt ceiling – which currently stands at $16.7 trillion (or about 100 percent of total U.S. annual gross domestic product).
Congress has until Oct. 17 to reach an agreement to raise the limit or offer some kind of short-term budget compromise that the Democrat-controlled Senate and White House would accept, which appears unlikely at the time.
Backers of a raise in the ceiling, which includes Obama, say it is needed to avoid a U.S. default on sovereign debt. Opponents say the ceiling increase should not happen, because the country is already too deeply in debt; besides, they note that the U.S. government brings in plenty of tax and other revenues monthly to handle its interest and debt payments.
Nevertheless, primarily because of the way the issue is being portrayed by the press, there is concern among some of the large banks that a run of cash could be in the offing.
Americans are already hoarding cash as well
More from the Telegraph:
Banking sources told the Daily Telegraph that they had learned many lessons from a similar game of political brinkmanship in August 2011, when budget negotiations and concerns over the eurozone crisis triggered a sharp drop in stock prices around the world. The market turmoil induced panic among customers, who made a run on banks to withdraw their cash.
“That was the fire drill, but that’s also what happens around ‘disasters’ such as hurricanes or earthquakes,” one source told the paper. “We all have that disaster playbook on the shelf.”
Indeed, banks have been hoarding cash for years, including cash they have been pressured to loan . Whether or not there will be panic if Washington doesn’t come to a budget deal remains to be seen, but it never hurts to have some assets on hand at all times in any event.
According to some reports, Americans are already doing that.
This article was posted: Thursday, October 10, 2013 at 4:07 am