Top US bankers warn against prioritizing interest payments - WSJ

Reuters

Oct 8 (Reuters) - Top U.S. bankers have warned the Obamaadministration and Republican lawmakers that any move to payinterest on debt before obligations such as Social Security andpayments to veterans would pose severe risks to financialmarkets and the economy, the Wall Street Journal reported.

Some lawmakers think prioritizing interest payments wouldplacate bond investors if the government breaches its borrowinglimit, the Journal said.

However, heads of the nation's largest financialinstitutions told the officials in meetings that prioritizingsome payments would create insurmountable uncertainty forinvestors, drive up borrowing costs and disrupt markets, theJournal said, citing people familiar with the meetings.

As the U.S. government moved into the second week of ashutdown on Monday with no end in sight, a deadlocked Congressalso faced an Oct. 17 deadline to increase the nation'sborrowing power or risk defaulting on its debt.

If no deal is reached, many outside observers includingdebt-ratings firms assume the government will begin prioritizingpayments to bondholders over others, rather than risk defaultingon its debt, the Journal said. ()

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