In 2008, the U.S. government bailed out the country's biggest investment banks amid financial turmoil. Now the banks are ready to backstop the government as debt ceiling talks go down to the wire, which DealBook first reported.
On Tuesday, the government of California unveiled a plan under which big banks are ready to lend $5.4 billion to the state if it can't pay its bills after the debt ceiling deadline on Tuesday. California needs the backup plan because its budget included going to the market to sell about $5.4 billion in bonds in late August.
"But if Congress and the President do not reach an agreement to raise the debt ceiling by Aug. 2, capital markets likely would be thrown into chaos," State Treasurer Bill Lockyer said in an announcement of the bank backstop. "Additionally, if the federal government prioritizes payments to conserve cash and avoid default, California and other states could see a disruption in their payments for health care, transportation and other services."
The bank backstop comes in the form of selling interim "revenue anticipation notes" that yield a measly 0.237 percent and mature on Nov. 22.
Goldman Sachs (GS) and Wells Fargo (WFC) are the lead lenders and will pony up $1.5 billion each. The consortium also includes Citigroup (C), Barclays (BCS), JPMorgan (JPM), Bank of America Merrill Lynch (BAC), Morgan Stanley (MS) and US Bank (USB).