Banks are preparing to cut the use of Treasurys to back deals in the repurchase, futures and swaps markets as a precaution in case politicians fail to raise the $14.3 trillion debt ceiling, the Financial Times reports.

Bank executives, speaking to the paper anonymously, say they plan to use more cash as collateral against derivatives and other transactions.

"We're planning to lower our reliance on the use of Treasurys in early August and have more cash on hand as a contingency measure," one U.S. bank chief tells the newspaper.

About $4 trillion in U.S. Treasury debt is used to back deals in the repurchase, futures and swaps markets, according JPMorgan Chase estimates.

Treasury Secretary Tim Geithner (Getty Images photo)

Treasury Secretary Tim Geithner has said lawmakers must extend the debt ceiling by Aug. 2 or the U.S. could default, which would be a first at the federal level.

Republicans have said they are willing to work with the government but are insisting that lifting the ceiling must come with significant spending cuts.

Ratings agencies are warning they will cut the country's top investment ratings if the government defaults.

Fitch became the latest agency to issue such a warning, adding a default would disrupt recovery.

"Default by the world's largest borrower and issuer of the pre-eminent reserve currency would be extraordinary and threaten the still fragile financial stability in the U.S. and the world as a whole, especially against the backdrop of the European sovereign debt crisis," says David Riley, head of Sovereign Ratings at Fitch, in a statement.