CEOs Warn Of 'Extremely Adverse' Effects Of Debt Ceiling Standoff

WASHINGTON, Oct 2 (Reuters) - Chief executives from major financial institutions met with President Barack Obama on Wednesday and warned of "adverse" consequences if government agencies remain closed and if lawmakers failed to raise the U.S. debt ceiling by mid-October.

Congressional Republicans and the White House are in a stalemate over government funding, which has forced the first government shutdown in 17 years.

Republicans, seeking to stop Obama's signature health care act, have tied spending bills for the fiscal year that started Oct. 1 to defunding or delaying the law, a course rejected by the president and his fellow Democrats .

The two sides are also at odds about an Oct. 17 deadline to raise the U.S. borrowing limit.

Goldman Sachs chief executive Lloyd Blankfein, while stressing that the business leaders who met with Obama represented diverse political views, implicitly criticized Republicans for using their opposition to the healthcare law as a weapon that could lead to a U.S. default.

"You can litigate these policy issues. You can re-litigate these policy issues in a political forum, but they shouldn't use the threat of causing the U.S. to fail on its ... obligations to repay on its debt as a cudgel," Blankfein said.

While the government closure has already had repercussions from frustrated tourists turned away from national parks to canceled stops on Obama's Asia trip, the deadline for raising the nation's debt limit poses a much graver risk.

If Congress fails to raise the $16.7 trillion borrowing cap, the United States would go into default, likely triggering financial market shockwaves around the world.

"There's no debate that the seriousness of the U.S. not paying its debts ... is the most serious thing we have, and we witnessed that in August '11 and you saw the ramifications: a slowdown in the economy," said Brian Moynihan, chief executive of Bank of America.

The United States came close to default during a similar political crisis in 2011. That standoff prompted a first-ever downgrade of the United States' credit rating.

Conservative Republicans have signaled they will take the same tactic on the debt limit this year as they did on government funding by seeking to dismantle or put off the health care law. The president has refused to negotiate over raising the debt limit.

'NO PRECEDENT'

Business leaders made clear the financial world wanted to avoid the risk of the government not paying its bills.

"There is precedent for a government shutdown. There's no precedent for default. We're the most important economy in the world. We're the reserve currency of the world," said Blankfein.

Business leaders wanted Washington to understand "the long-term consequences of a shutdown ... certainly the consequences of a debt ceiling (not being raised), and we all agree that those are extremely adverse," he said.

Michael Corbat of Citigroup, Jamie Dimon of JPMorgan Chase & Co, Robert Benmosche of AIG, James Gorman of Morgan Stanley, and John Stumpf of Wells Fargo , among others were scheduled to attend the session along with Vice President Joe Biden .

"I think both sides have a pretty good appreciation for what's at stake here," said Citi's Corbat. He said the executives were "trying to encourage both sides to engage."

Some engagement is scheduled for later on Wednesday, when Obama meets with the top leaders of Congress at the White House. Treasury Secretary Jack Lew would brief the leaders at the meeting on the impacts of the threat of default in 2011 and the economic imperative for Congress to act to raise the debt ceiling, White House spokesman Jay Carney said.