Default would be "calamitous": FDIC's Bair

WASHINGTON Thu May 26, 2011 12:31pm EDT

Sheila Bair, chairman of Federal Deposit Insurance Corporation, speaks at the Independent Community Bankers of America’s (ICBA) 2011 National Convention and Techworld in San Diego, California March 22, 2011. REUTERS/Mike Blake

Sheila Bair, chairman of Federal Deposit Insurance Corporation, speaks at the Independent Community Bankers of America’s (ICBA) 2011 National Convention and Techworld in San Diego, California March 22, 2011.

Credit: Reuters/Mike Blake

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WASHINGTON (Reuters) - A senior U.S. banking regulator urged Congress to raise the federal debt ceiling to prevent a "calamitous" government debt default.

As she prepares to step down in July, Federal Deposit Insurance Corp Chairman Sheila Bair told a congressional panel on Thursday she was concerned about the federal debt.

"But as strongly as I feel about this issue, I feel just as strongly that a technical default on U.S. government obligations would prove to be calamitous," she said.

Congress must raise the $14.3 trillion government debt ceiling by August 2 to avoid a default. Both Democrats and Republicans want to pair an increase in the ceiling with steps to bring stubborn trillion-dollar deficits under control, but a compromise along these lines has proved elusive.

"Investor confidence in U.S. Treasury obligations is absolutely vital to domestic and global financial stability and cannot be taken for granted," Bair said. "In the end, that confidence is based solely on the belief that policymakers will do whatever is necessary to make good on the nation's financial obligations.

"Any signal to the contrary risks permanently destroying the inviolable trust that investors the world over have placed in this nation for more than two centuries. I urge Congress to reaffirm this trust by committing to a responsible increase in the debt ceiling."

Bair also told the U.S. House of Representatives Financial Services Committee that new capital standards being developed for the world's largest banks should lean on tangible common equity rather than less reliable convertible debt.

The Basel Committee, a bank oversight group based in Switzerland, is working on the new standards, which would augment more widely applicable standards set in December.

The new standards "must be met with the same tangible common equity that Basel III requires for the new minimum standard for common equity capital. Allowing convertible debt to meet these standards suffers from a number of potential problems," Bair said.

(Reporting by Kevin Drawbaugh; Editing by Tim Dobbyn)

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Comments (3)
Ralphooo wrote:
If the Republicans refuse to raise the debt ceiling, it will make clear to the world their willingness to abrogate U.S. debt. It is one more example of of the irresponsible government they have been advocating for years, with no explanation and no principles. If reneging on debt is what they think of as free-market Capitalism, they are even more stupid than we realized.

May 26, 2011 12:14pm EDT  --  Report as abuse
Dickturpin wrote:
This is all theater. Had we simply called it the ‘credit ceiling’ to begin with, there would be none of this brouhaha. As it is, Republicans jump on the word ‘debt’ and attempt to use its connotations of ‘irresponsible’ or ‘greedy’ to imply that the Democrat administration is somehow unethical if they support raising the so-called ‘debt ceiling.’

This latest wrangling is further proof that Republicans treat American politics as if it were an athletic contest and the main thing is to be the winner rather than to use politics as a cooperative tool to improve the overall quality of American life.

I’m not a Democrat or Republican, and I don’t vote, but I’m highly intelligent and curious about world affairs, if I did vote, the first thing I’d do is vote Republicans out of existence. They’re clearly a scourge on humanity. (Second thing I’d do is dismantle the Democrat party.)

May 26, 2011 2:51pm EDT  --  Report as abuse
EN3 wrote:
It is simply called responsibility, living within your means not beyond it. Sometime we have to stop it’s not a democrat thing it’s not a republican thing it’s both parties spending money we do not have. Making promises we cannot keep nor can we afford to keep them anymore we need to stop. Calling it what you like credit or debt it’s still the same thing we owe money that we cannot afford. Quite simply and end it.

May 26, 2011 4:45pm EDT  --  Report as abuse
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