President Biden's efforts to erase the threat of a disaster add to banks' worries

Debt ceiling negotiations between US President Joe Biden and leading Democrats and Republicans ended on May 16 after less than an hour of meetings. House Speaker Kevin McCarthy seemed optimistic after the meeting.

The US is worried about an unprecedented debt default scenario. (Source: NBC News)

Speaking to reporters, Mr. McCarthy said that the two sides were still far from reaching an agreement to raise the debt ceiling. However, according to him, "an agreement could still be reached by the end of the week."

The US House Speaker said President Biden is trying to reach a deal before June 1 to avert the threat of economic disaster if the US defaults and this meeting was a little more productive.

Mr. McCarthy also affirmed: "The meeting set the stage for future dialogue on raising the debt ceiling. President Biden has appointed two people in his administration to negotiate directly with Republicans on the debt ceiling issue."

Meanwhile, the Democrats did not appear positive about a quick timeframe to reach an agreement, although the White House affirmed that the meeting was "productive and direct".

As planned, President Biden will leave the US on May 17 to attend the 3-day G7 Summit (May 19-21) in Japan.

The White House confirmed that the US leader will then cut short his planned trip to Asia and return to Washington at the weekend to negotiate with Republicans on a deal to raise the debt ceiling.

Against this backdrop, Wall Street banks and asset managers have begun preparing for the implications of a US default.

The financial sector has been preparing for such a crisis before, most recently in September 2021. However, this time the time for reaching a deal is relatively short, which is worrying banks.

Citigroup CEO Jane Fraser said this debt ceiling disagreement is more worrying than previous ones.

Meanwhile, CEO of JPMorgan Chase & CO Jamie Dimon revealed that the bank holds weekly meetings about the impacts if the US defaults.

US government bonds are the foundation of the global financial system, so it would be difficult to fully assess the impact of a default.

However, CEOs say there will be major fluctuations in stock, bond and other markets.

Wall Street CEOs who advise on government bonds warn that the bond market's troubles will quickly spread to derivatives, mortgage and commodities markets as investors question the legal value of bonds widely used to secure transactions and loans.

Even a short-term debt overhang could cause interest rates to rise, stock prices to plummet and violations of loan agreements.

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