Payment System Disruptions and the Federal Reserve Following September 11, 2001

1. Payment System Disruptions and the Federal ReserveFollowing 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. Verizon FRBNY Lower Manhattan September 15, 2001 Source: Space Imaging

4. Figure 1 Account Balance Distribution, August 1 - September 20, 2001 Million $ 2,000 9/11 1,500 1,000 500 0 8/1 8/8 8/15 8/22 8/29 9/5 9/12 9/19 Percentiles 99.9th 99.8th 99.7th 99.6th 99.5th

5. Figure 1 Account Balance Distribution, August 1 - September 20, 2001 Thousand $ 900 9/11 800 700 600 500 400 300 200 100 0 8/1 8/8 8/15 8/22 8/29 9/5 9/12 9/19 Percentiles 90th 80th 60th 40th Source: Daylight Overdraft Reporting and Pricing System, and author's calculations

6. Figure 5 Daily Fedwire Funds transfers for September 10-21, 2001 compared with August 2001 Transactions Billion $ 500,000 2,500 Volume, left axis 450,000 Value, right axis 400,000 2,000 350,000 300,000 1,500 250,000 200,000 1,000 150,000 100,000 500 50,000 0 0 August average 9/10 9/11 9/12 9/13 9/14 9/17 9/18 9/19 9/20 9/21

7. Figure 5 Daily Fedwire Securities transfers for September 10-21, 2001 compared with August 2001 Transactions Billion $ 180,000 2,500 160,000 2,000 140,000 Volume, left axis Value, right axis 120,000 1,500 100,000 80,000 1,000 60,000 40,000 500 20,000 0 0 AUGUST 9/10 9/11 9/12 9/13 9/14 9/17 9/18 9/19 9/20 9/21

8. Figure 3 Cumulative Changes in Components of Currency in Circulation from September 10, 2001 Billion $ Currency in circulation 5 Currency outside banks 4 3 2 1 0 -1 -2 -3 Vault cash -4 -5 9/10 9/11 9/12 9/13 9/14 9/15 9/16 9/17 9/18 9/19 9/20 9/21 9/22 9/23 9/24 9/25 9/26 9/27 9/28 9/29 9/30 Source: FAME Database and EDDS, Board of Governors

9. Figure 4 Currency in Circulation, 2001 Billion $ Billion $ 630 120 620 110 Currency in Circulation, left axis 610 100 600 90 9/11 590 80 580 70 Currency Outside Banks, left axis 570 60 560 50 Vault Cash, right axis 550 40 540 30 530 20 8/5 8/12 8/19 8/26 9/2 9/9 9/16 9/23 9/30 10/7 10/14 10/21 10/28 Source: FAME Database and EDDS, Board of Governors

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. Table 1. Factors Affecting Account Balances of Depository Institutions, September 10-21, 2001 End of day balances, billion $ Repos Overnight credit Date Term Overnight Check float Swap draws Currency Other Discount Overdrafts Balances Sep 10 23 0 1 0 -611 601 0 0 13 Sep 11 23 0 4 0 -613 595 37 2 47 Sep 12 23 38 23 5 -616 585 46 4 109 Sep 13 14 70 47 20 -615 577 8 0 121 Sep 14 14 81 44 9 -615 578 0 0 111 Sep 17 12 57 12 0 -615 579 0 0 45 Sep 18 12 36 9 0 -616 578 0 0 19 Sep 19 12 28 4 0 -615 584 3 0 15 Sep 20 33 7 3 0 -614 583 1 0 13 Sep 21 33 1 1 0 -612 588 2 0 12

12. Figure 5 Daylight overdrafts for September 10-21, 2001 compared with August 2001 Billion $ Billion $ 160 160 Peak Average 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 0 AUGUST 9/10 9/11 9/12 9/13 9/14 9/17 9/18 9/19 9/20 9/21 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.

13. Table 2. Summary Results of Repurchase Financing, September 12-19, 2001 Date Total Props Accepted Props High Bid Low Bid Stop-Out Weighted Avg (Billion $) (Billion $) (Financing Rates for Overnight Repurchase Agreements) Sep 12 46.25 38.25 3.60 3.25 3.50 3.54 Sep 13 70.20 70.20 4.00 3.50 3.50 3.60 Sep 14 81.25 81.25 3.75 3.50 3.50 3.54 Sep 17 59.55 57.25 3.15 2.90 3.00 3.07 Sep 18 37.75 36.25 2.30 1.75 2.00 2.16 Sep 19 27.60 27.60 1.20 0.75 0.75 1.00

14. Figure 6 Federal Funds Rates around September 11, 2001: High, Low, and Effective Rates Percent 7 6 5 High Rate Effective Rate 4 3 Target Level 2 1 Low Rate 0 8/23 8/24 8/27 8/28 8/29 8/30 8/31 9/4 9/5 9/6 9/7 9/10 9/11 9/12 9/13 9/14 9/17 9/18 9/19 9/20 9/21 9/24 9/25 9/26 9/27 9/28 10/1 10/2 10/3 Source: Markets Group, Federal Reserve Bank of New York