Government default would be "calamitous": FDIC's Bair

Reuters

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 committee on Thursday she was concerned about the government's debt.

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"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."

(Reporting by Kevin Drawbaugh; Editing by Tim Dobbyn)