This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Banks Start Thinking About a Worst-Case Default Scenario

NEW YORK ( TheStreet) -- Unless Congress can agree on a deal, on Oct. 17 the U.S. government could hit its debt ceiling and not be able to pay what it owes.

Normally it's just a date on the calendar stuck innocuously between Columbus Day and Halloween. This year, it's the date the U.S. Treasury Department says it's basically broke (it will have about $30 billion in cash, and any tax money that happens to roll in).

It's hard to imagine Washington pols won't agree to a deal before then, but one bank isn't taking any chances.

According to The Financial Times, banks are stocking up on cash in their ATMs in anticipation of a government credit default.

One senior executive told the Times that his bank was putting 30% more cash than usual in its ATMs. The reasoning is simple: With the government out of money, a worst-case scenario has Americans making a run on banks in anticipation of a collapsing economy. The Treasury Department says the economic fallout from a credit default could be a freeze in global credit markets, a falling U.S. dollar and rising interest rates.

Again, that's the worst-case scenario, but it's one banks take seriously. An article in The New York Times shows Treasury data revealing a default could lead to "a financial crisis and recession that could echo the events of 2008 or worse."

Other banks are taking special precautions for customers who rely on government checks for their primary source of income (mostly Social Security recipients.)

If those checks were to be cut off in late October and November, these banks would waive overdraft fees and allow customers access to interest-free cash until their government checks resume.

Officials at major U.S. banks say they doubt the U.S. will be bouncing checks anytime soon.

A research note released by Morgan Stanley (MS) this week notes that there have been 17 government shutdowns since 1976. Their message clients is to not panic, and that the economy will weather this storm, as it has the previous 17 storms.

"We believe there is a zero percent chance of a federal government default at this time," Morgan Stanley told clients. "The U.S. government will pay its bills."

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs