When it comes to raising the $14.3 trillion debt ceiling and avoiding default, Wall Street banks are hoping for the best, but are preparing for the worst.

The government says it could default if Congress doesn't lift the debt ceiling by Aug. 2.

Lawmakers, who must approve the deal, have yet to reach a concrete deal, and banks are drafting contingency plans with their Treasury holdings in the event a default does occur, the New York Times reports.

(Getty Images photo)

Banks uses Treasury instruments like currency, often as security deposits for many financial transactions.

"Now, banks are sifting through their holdings and their customers’ holdings to determine if these security deposits will retain their value," the newspaper reports.

"In addition, mutual funds — which own billions of dollars in Treasurys — are working on presentations to persuade their boards that they can hold the bonds even if the government debt is downgraded. And hedge funds are stockpiling cash so they can buy up United States debt if other investors flee."

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Even if the U.S. manages to avoid a default and keeps its AAA credit ratings intact, some analysts at the agencies that assign those ratings say fears of a default alone are doing damage to the country's reputation.

"Our aura is diminished. You know people really view the U.S. as the AAA, the gold standard, and I think we’re tarnishing that," says Mark Zandi, the chief economist at Moody’s Analytics.

Fitch Ratings, meanwhile, reiterates its view that the country's AAA rating could be history if the government defaults.

"Agreement on a credible fiscal consolidation strategy will secure the U.S. 'AAA' status; failure to do so will inevitably weaken the sovereign credit profile and may result in a sovereign rating downgrade," Fitch says, according to Reuters.