Veteran bank executives are meeting with senior lawmakers and federal officials as the government comes within two weeks of a potential debt default.
The debt ceiling, a statute established by Congress that prevents the government from spending beyond a predetermined national debt limit of $31.4 trillion, exceeded the threshold earlier this year. Treasury Secretary Janet Yellen said in a letter that her agency expects to default on obligations as early as the first day of June unless the debt limit is amended.
Senate Majority Leader Chuck Schumer (D-NY) hosted a meeting with JPMorgan Chase CEO Jamie Dimon and Citigroup CEO Jane Fraser on Wednesday morning, according to a report from Bloomberg. Dimon informed the outlet that his financial institution created a “war room” that will monitor contingencies should lawmakers fail to make a deal to increase the debt limit.
“I asked them to make sure that they tell everybody that default should not be an option,” Schumer told journalists after the meeting with Dimon and Fraser, according to a report from CNN. An unnamed source told the outlet that the conversation between Schumer and the executives was “frank,” noting that the lawmaker prompted them to ask every member of Congress to explicitly commit themselves to avoid a default.
A default would likely induce a recession as the federal government, a major borrower of funds that investors around the world generally consider to be reliable, neglects to repay obligations.
The national debt, which now surpasses $31.7 trillion, nevertheless offers persistent financial risk and functions as a damper on long-term economic growth. Elevated interest rates on the national debt have weighed on the budget in recent months as lawmakers are forced to allocate more tax revenue toward servicing the obligations rather than funding federal programs.
The executives are currently in the nation’s capital for an annual Bank Policy Institute summit. Yellen is scheduled to meet with the two executives, as well as Bank of America CEO Brian Moynihan, on Thursday afternoon.
The meeting with Schumer comes one day after President Joe Biden and House Speaker Kevin McCarthy (R-CA) held talks to discuss possible mechanisms to raise the debt limit. Republicans desire to link a temporary increase in the debt ceiling with spending limits, while Democrats say they prefer separate processes for debt limit negotiations and budget reforms.
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The White House said in a readout that the meeting was “productive and direct,” while McCarthy said in his own remarks that “it is possible to get a deal by the end of the week.”
Schumer, Dimon, and Fraser also discussed the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank, the latter of which JPMorgan Chase acquired in a deal brokered by federal regulators. Dimon insisted to reporters that “regional banks are strong.”
The implosion of the three medium-sized banks, where the vast majority of account balances exceeded the $250,000 threshold guaranteed by the Federal Deposit Insurance Corporation, prompted the government-backed company to secure insured and uninsured accounts at the first two financial institutions in early March to prevent further bank runs. Other regional banks, such as PacWest and Western Alliance, have witnessed significant turmoil in the stock market and increased withdrawal levels in recent weeks.