Financial industry says default is 'unacceptable'

But even amid the government shutdown, Gregg said he is more encouraged about lawmakers reaching a broad agreement on the budget and debt ceiling because Speaker John Boehner (R-Ohio) and President Obama have both said they won't allow a default. 

"My thought is that things are moving away from default and they won't accept it as an option," he said. 

"Now the question is to get in a room and work out the details of a formal agreement."

Gregg anticipates that any a "mini grand bargain" will include the sequester, budget and debt ceiling issues and segue into a path for entitlement and tax reform. 

"There is clearly bipartisan activity in this arena and hopefully it turns into action." 

A default on the nation's $16.7 trillion debt would probably lead to higher interest rates that would push up rates on nearly all credit, including mortgages and business loans, which would weigh on the fragile economic recovery.

Treasury Secretary Jack Lew has said he will run out of "extraordinary measures" to pay the federal government's bills on Oct. 17 and that the agency will have $30 billion in cash on hand. Treasury has approximately $370 billion in debt coming due during late October to Nov. 15 — well beyond the expected amount the agency will have available, SIFMA said. 

Rob Toomey, SIFMA's managing director and associate general counsel, said a default would "be an unprecedented event and the consequences are dangerously unpredictable."

Toomey said for SIFMA's scenario it won't matter how much or for how long Congress agrees to raise the debt ceiling, as long as they agree to give Treasury more room to pay its bills. 

He said it is the understanding that Treasury will determine payments and postponements on a day-by-day basis if the situation reaches that point. 

The timing of Treasury’s announcement of its intention not to make a payment on time could lead to a "liquidity drain."

"No scenarios are clean, some are truly catastrophic," he said.  

Toomey said that SIFMA would start with phone calls to its members on Oct. 16 to begin preparations.

"Given what we understand to be the limitations of the transfer mechanism for Treasury securities, failure to provide sufficient notification for a payment failure prevents the security from being further transferred," the statement said. 

"Holders of such a security would be unable to sell it, finance it through repo or post it as collateral."

Toomey also doesn't expect that Treasury would have the ability to prioritize its debt payments because of legal and operational constraints.

Treasury processes nearly 100 million payments a month and has asserted that it will be impossible to implement a priority payment system.

"Treasury can't pick winners and losers," he said.