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Report: Fed, Treasury Start on Default Contingency Plans

BudgetThe Federal Reserve System and the U.S. Treasury have started working to develop a contingency plan in case the government fails to extend the nation’s $16.7 trillion debt ceiling by Oct. 17, Reuters reported Thursday.

Tim Reid and Jonathan Spicer write officials are evaluating options on how to handle the potential impact of a default on the economy and credit markets.

Reuters reports thestrategy would focus on tri-party repurchase agreements, where financial institutions use a Treasury bill, note or bond as collateral for a short-term loan.

The Securities Industry and Financial Markets Association have created a plan intended to reduce the risk of chaos in the event of a default, Reid and Spicer write.

SIFMA Managing Director Rob Toomey told Reuters the trade group presumes that the Treasury would notify creditors the night before it would miss a debt payment.

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