U.S. Treasury eyes larger cash buffer against 'emerging threats'

May 6
6:52 PM 2015

The U.S. government said on Wednesday it will start keeping more cash on hand for when it can't tap debt markets, a measure that could help it pay bills during a natural disaster or a cyber attack.

In its announcement, the U.S. Treasury also said it would start raising the level of short-term debt on the market to meet demand for Treasury bills, which has been pumped up by rules enacted since the 2007-2009 financial crisis requiring firms to hold more cash-like securities.

The announcements are examples of how debt management strategies have shifted following a series of natural and manmade disasters over the last 15 years.

The Treasury will now try to hold enough cash to cover about a week of federal outlays, keeping a minimum of $150 billion on hand. In recent years, it held enough for about two days.

"(The) Treasury believes it is prudent to change its cash management policy starting this month," said Acting Assistant Secretary for Financial Markets Seth Carpenter, citing "emerging threats" like potential cyber attacks. He also noted the attacks of Sept. 11, 2001 and bad storms in 2012.

The buffer would help the Treasury pay the nation's bills when it cannot borrow from investors at weekly auctions. That could be very handy if hurricanes or hackers shook Wall Street.

Another Treasury official said a week of spending would require on average between $200 billion and $225 billion, above the average buffer maintained in recent years of about $80 billion.

The new cash balance would probably not impact how that last days play out in Washington's perennial battles to raise the debt limit. That's because the cash buffer would fall below $150 billion well before the Treasury could no longer make payments, a Treasury spokesman said.

The government came perilously close to running out of money in 2011 and 2013 as Congress debated raising the debt limit.

Washington is currently just below its $18.1 trillion debt ceiling and analysts think the government doesn't risk hitting it until October.

Carpenter said the debt ceiling was "in no way" related to the cash policy, which he said would not change the date when the government would start missing payments if the debt ceiling were not raised.

He said the Treasury still wants to extend the average weighted maturity of its debt even as it makes Treasury bills a bigger part of the market.

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