JPMorgan Chase CEO Jamie Dimon said on Tuesday that the bank has started preparing for the possibility of the United States hitting its national debt limit although he expects Congress to avoid the "potentially catastrophic" situation by lifting the debt ceiling.
Dimon, in an interview to Reuters, said that although he has faith in Congress, the country's largest lender has begun scenario-planning for how a possible default would affect financial markets, capital ratios, client contracts and the country's credit ratings. Dimon said this is something that the bank had done earlier too during close calls with debt ceilings.
Reason to Worry
Dimon told that the bank is prepared for such a scenario but believes that policymakers will eventually find a solution to avoid this situation. "Every single time this comes up, it gets fixed, but we should never even get this close," Dimon told Reuters. "I just think this whole thing is mistaken and one day we should just have a bipartisan bill and get rid of the debt ceiling. It's all politics."
However, Dimon also said that this isn't the first time that the bank is facing such a situation. "This is like the third time we've had to do this," adding, "It is a potentially catastrophic event."
Although every time such a situation has come up, it has been fixed through last-minute deals but Dimon warned that it should not come this close. Political fights over the debt ceiling had previously been settled through deals in 2011 and 2017. The last time JPMorgan prepared for a potential national debt default, it cost the bank roughly $100 million.
Govt Scrambles to Raise Borrowing Cap
Democrats have been struggling to raise the $2.84 trillion borrowing cap before the Treasury Department runs out of ways to service the nation's debt, which has been a major reason of worry. Dimon's remarks came on a day, Treasury Secretary Janet Yellen told lawmakers that the Fed will be left with no cash or extraordinary measures by October 18.
If that happens, it will set the stage for a potential default unless the Congress raises the debt limit before then. Yellen also urged lawmakers to either raise or altogether suspend the federal debt limit to avoid such a catastrophic situation. "It would be disastrous for the American economy, global financial market and millions of families and workers whose financial security would be jeopardized by a delay in payments," she said at a hearing.
"Even coming very close to the deadline without raising the debt ceiling can undermine the confidence of financial markets in the creditworthiness of the United States," she added.
Democrats had expected to avoid a partial government shutdown and to suspend the federal debt ceiling with a single vote. However, that didn't happen as they were blocked on Monday in the Senate by Republicans, who said the two matters should be dealt with separately.