US banks prepare to lower use of Treasuries: FT

NEW YORK: A number of Wall Street's biggest banks are preparing to lower their use of US Treasuries in August, the Financial Times reported on Sunday.

The decision comes as a precaution against any turbulence that could follow if conflicting Republicans and Democrats fail to increase soon the US debt ceiling, the newspaper said, citing a senior bank chief.

The report did not provide names of specific banks that would be cutting their use of US Treasuries.

One alternative strategy that bank executives disclosed to the FT is to have more cash on hand to put up as collateral against derivatives and other transactions, decreasing the financial system's reliance on Treasuries.

Investors worldwide own large amounts of the debt that has been sold by the US government as part of their portfolios.

US President Barack Obama and Republican lawmakers are engaged in a high-stakes standoff over raising the $14.3 trillion US borrowing limit, which the administration says must happen before Aug. 2 to prevent the United States from defaulting on its obligations.

Meanwhile, Wall Street has told the Treasury that such a scenario could create huge problems for financial markets.

The Treasury Market Practices Group, which is sponsored by the Federal Reserve Bank of New York and includes the biggest repurchase market dealers, Bank of New York Mellon and JPMorgan Chase, was not immediately available for comment.

Copyright Reuters, 2011