(Reuters) - Citigroup Inc <C. N> and State Street Corp <STT. N> have been exploring ways in which they might impose limits on the use of short-term treasury bills due in the coming weeks as collateral, the Wall Street Journal reported, citing people familiar with the matter.

Because of the uncertainty over U. S. finances, banks and money market funds are already shunning some government securities that are often used as collateral for short-term loans and to facilitate many other transactions.

Citigroup and State Street have large clearing operations, standing in between counterparties to guarantee trades in the event of a default by one party.

Citi has started telling some clients that it may not accept bills maturing October 24 or October 31 as collateral, the Journal said.

There was no set policy in place, but Citi was sounding out certain clients about whether they could instead substitute Treasurys that mature at a later date, the paper said.

Certain units of State Street have been discussing which Treasury bills it may restrict as collateral for loans and trades, the Journal said, citing a person familiar with the matter. (http://link.reuters.com/kez73v)

A spokesman for State Street told the newspaper that the company is monitoring negotiations in Washington and evaluating ways to protect its clients, but had not implemented any changes to its collateral policy.

Citigroup spokesman Mark Costiglio declined to comment on the Journal report when contacted by Reuters.

State Street could not immediately be reached for comment by Reuters outside of regular U. S. business hours.

(Reporting by Sakthi Prasad in Bangalore; Editing by Supriya Kurane)

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