Close Call

With the prospect of fiscal chaos narrowly averted, the U.S. government will go back to what passes as business as usual in this most partisan and acrimonious era.  Later this week, HFSC will look into all the chaos that preceded debt-ceiling approval, looking as we’ve noted at several bills designed to plan ahead for default to which we expect Treasury will vigorously object.  We had been told that Secretary Yellen would testify before the full House committee on June 7, but perhaps she’s too tired or Chairman McHenry (R-NC) – who was up many nights in the last week or so – needs a break.  Secretary Yellen may also need to stay in the office because, even with a ceiling hike, financial markets aren’t out of the woods.  As Karen Petrou’s speech on Monday will note, significant disruptions may occur as Treasury speeds to refill its cash coffers, altering Treasury rates with challenging implications for market liquidity, reserve adequacy, and operational resilience.  Regional banks need no more excitement and we’ll of course be watching out for any emerging risks as the week advances.