Payment System Disruptions and the Federal ReserveFollowing September 11, 2001

Jeffrey M. Lacker*

Federal Reserve Bank of Richmond

Conference on the Economics of PaymentsFederal 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.

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Lower ManhattanSeptember 15, 2001Source: Space Imaging

Verizon

FRBNY

3

4

Figure 1Account Balance Distribution, August 1 - September 20, 2001

0

500

1,000

1,500

2,000

8/1 8/8 8/15 8/22 8/29 9/5 9/12 9/19

99.9th 99.8th 99.7th 99.6th 99.5thPercentiles

Million $

9/11

5

Figure 1Account Balance Distribution, August 1 - September 20, 2001

0

100

200

300

400

500

600

700

800

900

8/1 8/8 8/15 8/22 8/29 9/5 9/12 9/19

Source: Daylight Overdraft Reporting and Pricing System, and author's calculations

90th 80th 60th 40thPercentiles

9/11

Thousand $

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Figure 5Daily 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

Augustaverage

9/10 9/11 9/12 9/13 9/14 9/17 9/18 9/19 9/20 9/21

0

500

1,000

1,500

2,000

2,500

Volume, left axis

Value, right axis

Billion $Transactions

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Figure 5Daily 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

AUGUST 9/10 9/11 9/12 9/13 9/14 9/17 9/18 9/19 9/20 9/21

0

500

1,000

1,500

2,000

2,500

Volume, left axis

Value, right axis

Billion $Transactions

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Figure 3Cumulative Changes in Components of Currency in Circulation from

September 10, 2001

-5

-4

-3

-2

-1

0

1

2

3

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

Billion $

Vault cash

Currency outside banksCurrency in circulation

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Figure 4Currency in Circulation, 2001

530

540

550

560

570

580

590

600

610

620

630

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

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 $ Billion $

9/11

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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

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Table 1. Factors Affecting Account Balances of Depository Institutions, September 10-21, 2001

End of day balances, billion $

Date Term Overnight Check float Swap draws Currency Other Discount Overdrafts Balances

Sep 10 23 0 1 0 -611 601 0 0 13Sep 11 23 0 4 0 -613 595 37 2 47Sep 12 23 38 23 5 -616 585 46 4 109Sep 13 14 70 47 20 -615 577 8 0 121Sep 14 14 81 44 9 -615 578 0 0 111

Sep 17 12 57 12 0 -615 579 0 0 45Sep 18 12 36 9 0 -616 578 0 0 19Sep 19 12 28 4 0 -615 584 3 0 15Sep 20 33 7 3 0 -614 583 1 0 13Sep 21 33 1 1 0 -612 588 2 0 12

Repos Overnight credit

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Figure 5Daylight overdrafts for September 10-21, 2001 compared with August 2001

0

20

40

60

80

100

120

140

160

AUGUST 9/10 9/11 9/12 9/13 9/14 9/17 9/18 9/19 9/20 9/21

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 $ Billion $

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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 $)

Sep 12 46.25 38.25 3.60 3.25 3.50 3.54Sep 13 70.20 70.20 4.00 3.50 3.50 3.60Sep 14 81.25 81.25 3.75 3.50 3.50 3.54Sep 17 59.55 57.25 3.15 2.90 3.00 3.07Sep 18 37.75 36.25 2.30 1.75 2.00 2.16Sep 19 27.60 27.60 1.20 0.75 0.75 1.00

(Financing Rates for Overnight Repurchase Agreements)

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Figure 6Federal Funds Rates around September 11, 2001: High, Low, and Effective Rates

0

1

2

3

4

5

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

High Rate

Target Level

Low Rate

7 6Percent

Effective Rate

Source: Markets Group, Federal Reserve Bank of New York

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