1. Payment System Disruptions and the Federal Reserve Following September 11, 2001 Jeffrey M. Lacker * Federal Reserve Bank of Richmond Conference on the Economics of Payments Federal Reserve Bank of Atlanta March 31, 2004 * The views expressed are the author’s and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

2. 2 Lower Manhattan September 15, 2001 Source: Space Imaging Verizon FRBNY

3. 3

4. 4 Figure 1 Account Balance Distribution, August 1 - September 20, 2001 0 500 1,000 1,500 2,000 8/18/88/158/228/299/59/129/19 99.9th99.8th99.7th99.6th99.5th Percentiles Million $ 9/11

5. 5 Figure 1 Account Balance Distribution, August 1 - September 20, 2001 0 100 200 300 400 500 600 700 800 900 8/18/88/158/228/299/59/129/19 Source: Daylight Overdraft Reporting and Pricing System, and author's calculations 90th80th60th40th Percentiles 9/11 Thousand $

6. 6 Figure 5 Daily Fedwire Funds transfers for September 10-21, 2001 compared with August 2001 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 August average 9/109/119/129/139/149/179/189/199/209/21 0 500 1,000 1,500 2,000 2,500 Volume, left axis Value, right axis Billion $Transactions

7. 7 Figure 5 Daily Fedwire Securities transfers for September 10-21, 2001 compared with August 2001 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 AUGUST9/109/119/129/139/149/179/189/199/209/21 0 500 1,000 1,500 2,000 2,500 Volume, left axis Value, right axis Billion $Transactions

8. 8 Figure 3 Cumulative Changes in Components of Currency in Circulation from September 10, 2001 -5 -4 -3 -2 0 1 2 3 4 5 9/109/119/129/139/149/159/169/179/189/199/209/219/229/239/249/259/269/279/289/299/30 Source: FAME Database and EDDS, Board of Governors Billion $ Vault cash Currency outside banks Currency in circulation

9. 9 Figure 4 Currency in Circulation, 2001 530 540 550 560 570 580 590 600 610 620 630 8/58/128/198/269/29/99/169/239/3010/710/1410/2110/28 Source: FAME Database and EDDS, Board of Governors 20 30 40 50 60 70 80 90 100 110 120 Currency in Circulation, left axis Currency Outside Banks, left axis Vault Cash, right axis Billion $ 9/11

10. 10 Fed statements Fedwire is “fully operational at this time and will remain open until an orderly closing can be achieved.” Fedwire broadcast message 9:24 am ET, 9/11 “The discount window is available to meet liquidity needs.” Fedwire broadcast message 11:25 am ET, 9/11 “The Federal Reserve System is open and operating. The discount window is available to meet liquidity needs.” BOG press release, noon 9/11 “The Fed is the lender of last resort. If credit is needed to make transactions go, the Fed will provide it.” Governor Gramlich, to reporter in Tuscon, 9/11 “I’m sure that central bankers everywhere will do everything possible to maintain calm and seek to ensure the world economy functions smoothly in the face of this horrendous deed.” FRBNY President McDonough, by phone from Basle, 9/11

11. 11 Table 1. Factors Affecting Account Balances of Depository Institutions, September 10-21, 2001 End of day balances, billion $ DateTermOvernightCheck floatSwap drawsCurrencyOtherDiscountOverdraftsBalances Sep 1023010-6116010013 Sep 1123040-61359537247 Sep 122338235-616585464109 Sep 1314704720-61557780121 Sep 141481449-61557800111 Sep 171257120-6155790045 Sep 18123690-6165780019 Sep 19122840-6155843015 Sep 2033730-6145831013 Sep 2133110-6125882012 ReposOvernight credit

12. 12 Figure 5 Daylight overdrafts for September 10-21, 2001 compared with August 2001 0 20 40 60 80 100 120 140 160 AUGUST9/109/119/129/139/149/179/189/199/209/21 0 20 40 60 80 100 120 140 160 Peak Average Notes : The PEAK daylight overdraft is determined by adding the account balances of all depository institutions in a negative position for each minute during the day and then selecting the largest negative end-of-minute balance. The aggregate AVERAGE daylight overdraft is the sum of all DI's average daylight overdrafts. A DI's average daylight overdraft is the sum of negative end of minute balances divided by total minutes in the standard Fedwire operating day. August is a monthly average of the daily data. Billion $

13. 13 Table 2. Summary Results of Repurchase Financing, September 12-19, 2001 DateTotal PropsAccepted PropsHigh BidLow BidStop-OutWeighted Avg (Billion $) Sep 1246.2538.253.603.253.503.54 Sep 1370.20 4.003.50 3.60 Sep 1481.25 3.753.50 3.54 Sep 1759.5557.253.152.903.003.07 Sep 1837.7536.252.301.752.002.16 Sep 1927.60 1.200.75 1.00 (Financing Rates for Overnight Repurchase Agreements)

14. 14 Figure 6 Federal Funds Rates around September 11, 2001: High, Low, and Effective Rates 0 1 2 3 4 5 8/238/248/278/288/298/308/319/49/59/69/79/109/119/129/139/149/179/189/199/209/219/249/259/269/279/2810/110/210/3 High Rate Target Level Low Rate 76 Percent Effective Rate Source: Markets Group, Federal Reserve Bank of New York

15. 15