If the US does not increase the debt ceiling and genuinely defaults, it's likely to render every commercial bank in the developed world insolvent.
Most banks hold US Treasuries as a large part of their "risk free" assets. If the US Congress does not agree to a debt ceiling increase by June-ish, and the US then defaults on a non-trivial amount of its debts, those "risk free" assets will actually be delinquent, and banks (including the fed) will be insolvent.
The immediate effect will be the technical insolvency of countless banks and financial organisations. They will also be in breach of numerous financial regulations, collateral agreements and debt covenants. Many pensions would also now have major black holes in them.
The longer term effects are unclear. It could be limited to a temporary technical insolvency, or the unwinding of all government debt in the world and the collapse of the fiat system.
IMHO it's incredible that the fiat system can have this single point of failure. But that's what you get with a centralised system.
So from New York to Seoul to Berlin to Nairobi, much of humanity is now dependant on a few dozen ill-tempered boomers in the US Congress reaching an agreement with each other. And they're highly incentivised towards brinksmanship and ideological point-scoring.
One thing I've learned about the fiat system is that supposedly low-risk assets often have huge guarantor or counterparty risk. "Safe" US Treasuries are about to be used as a political bargaining chip and stand a significant chance of going to zero. What's "safe" about that?!
It's like the Cuban missile crisis - a small number of people have the fate of the world in their hands. Their behaviour will be highly influenced by identity politics, spite and stubbornness. All it takes is one deranged bureaucrat who'd rather go down with the ship than let his opponents prevail.
I'm not surprised by the inherent vulnerability in centralised networks. What does surprise me is the extent to which banks have voluntarily loaded up on these nuclear bombs, making them the foundations of their organisations.
The danger of fiat doesn't surprise me, it's the humans that maximise their exposure to it that does.