If US defaults on its debts will banks in the US collpase?

jumperabv3

I'm just wondering if it's safe to use US banks nowadays when the US is about to collapse? I'm also referring to the branches in Canary Wharf in London like Bank of America and Citibank who have UK branches of those US banks.

Would you stop banking with these banks because of the news about the US that might go into default or these 2 topics are irrelevant to each other?

Randvegeta

I don't know about that. I would imagine the US dollar would just devalue. After all, the government could simply print more money to pay their debts. This would lead to massive inflation and as a result, devalue their currency... but I don't think it will cause them to collapse per se. Particularly if those banks hold not US cash assets. For example, many banks hold GOLD which will weather the devaluation quite nicely.

The biggest concern I think is GLOBAL CHAOS if the American Gov default on their debts. It's going to affect everyone. Never a good thing when the world's largest economy is in trouble.

Think about it this way. China is the US's largest creditor. The US is China's biggest customer. It is not in the interest of China to demand repayment of the debt if it means going into default, as it would mean less Chinese exports to the US. Kind of off topic I know, but my point is, we got bigger things to worry about than US banks

pmduk

I understand both of the banks you mention are included within the UK's FSCS which guarantees up to £85,000 per depositor per institution

The main site has a guide to this which can be found here

jumperabv3

pmduk wrote: »

I understand both of the banks you mention are included within the UK's FSCS which guarantees up to £85,000 per depositor per institution

The main site has a guide to this which can be found here

Thanks, but I don't want to rely on compensation scheme, I just want to know if the banks are safe. I don't see any warnings in the news to avoid US banks, so I'm wondering whether the media is 'sleeping' right now or whether the US default issue has nothing to do with the US banks, that's what I'm after.

Thanks!

pqrdef

jumperabv3 wrote: »

so I'm wondering whether the media is 'sleeping' right now or whether the US default issue has nothing to do with the US banks, that's what I'm after.

You can assume that the US banks are massive holders of Treasury bonds and would be bankrupt if those assets had to be written off. And the government wouldn't be able to bail them out.

What is less clear is when the assets would have to be written off. It's unlikely the Treasury would come straight out and say "we aren't redeeming these bonds, ever". The bonds would retain most of their value so long as there was a likelihood of their being redeemed at some point.

Thrugelmir

jumperabv3 wrote: »

Thanks, but I don't want to rely on compensation scheme, I just want to know if the banks are safe. I don't see any warnings in the news to avoid US banks

If Eire defaults then Lloyds and RBS will take hits on their property loans.

If Greece defaults then French banks are exposed.

Suggest you save with your local building society if you wish to sleep well at night.

Ark_Welder

The media isn't sleeping - at least, not the Business media

A default does not mean that Treasuries would become worthless, a default would mean that interest payments on some of the bonds have been missed. This does not mean that the interest would not be subsequently paid, nor that the bonds would not subsequently be redeemed. A default in this case might give the US politicians the kick up the backside that gets them do do what is necessary, and things could get back on track without too much delay.

A bit of speculation in some of the posts regarding what assets US banks may or may not hold. A few links to relevant verifiable information would be beneficial.

jumperabv3

pqrdef wrote: »

You can assume that the US banks are massive holders of Treasury bonds and would be bankrupt if those assets had to be written off. And the government wouldn't be able to bail them out.

What is less clear is when the assets would have to be written off. It's unlikely the Treasury would come straight out and say "we aren't redeeming these bonds, ever". The bonds would retain most of their value so long as there was a likelihood of their being redeemed at some point.

That sounds like banking with US banks at the moment is very very risky! why nobody comes out with a warning then? It sounds too scary for me to bank with banks that might go bankrupt too soon!! :eek:

pqrdef

Nobody is safe if the US Government goes bust. Other countries hold their reserves in US Treasuries.

The US casino banks - which use their holdings of Treasuries as collateral for their derivatives positions - aren't panicking, but they're talking about starting to reduce their dependence on Treasuries in August if a deal isn't reached.

But they seem to be talking about holding cash instead. And cash is backed by the Fed, which post-QE is the biggest holder of Treasuries, so would be on very thin ice.

If people lose faith in the US Government, it's hard to know what they're going to have more faith in.

Bloomberg

jumperabv3 wrote: »

I'm just wondering if it's safe to use US banks nowadays when the US is about to collapse? I'm also referring to the branches in Canary Wharf in London like Bank of America and Citibank who have UK branches of those US banks.

Would you stop banking with these banks because of the news about the US that might go into default or these 2 topics are irrelevant to each other?

I think that the best advice would be to keep your money spread around various institutions. Even if you are reimbursed under the financial services compensation scheme it could take time. If America does default then things could turn really ugly. I suspect that many of our high street banks are more exposed to America than they care to admit.

jumperabv3

Still talks and talks and talks .... no decisions.
What are they doing right now as we speak? Nothing?!

It's really getting serious and these idiots in the white house play roulette with the markets - Barclays lost over 4% today, the Asian companies like Toyota and Honda lost 1% today (in the stock market) - what's gonna be next? Bank runs?

This is really not funny and the guys in Washington just take it easy, they should stay awake all night and get a solution and they shouldn't be allowed to go home until a solution is declared...

:mad: