The terrorist attacks of Sept. 11 brought many things in the United States into sharp focus. One of these things was a critical need for the banking industry and the central bank to speak with one voice regarding the public's ability to access its funds.
Although our contingency plans didn't spell out a detailed response to this unforeseen disaster, the Federal Reserve, upon hearing of the attacks, mobilized swiftly to stabilize the payments system and provide needed liquidity. When the news broke, several issues demanded our immediate attention, including the massive volume of checks normally shipped by air (which we got moving by ground later that day), the resulting float (which we absorbed) and the needed short-term credit (which we extended in several different ways). As it turns out, the Fed had no problem providing the liquidity that the financial markets needed, just as it had during the stock market crash of 1987, the Russian default of 1998 and the Y2K scare.
In retrospect, we could have disseminated a reassuring message to the public about the availability of funds earlier than we did. The news would have been welcome in one area of the country, where a financial institution apparently limited the amount of cash its customers could withdraw, protecting what that institution sensed would lead to a demand for currency that could not be met. While such fears of a cash shortage were unfounded, they unfortunately could have triggered an actual bank run similar to the gasoline runs that occurred in some places the afternoon and evening of Sept. 11.
No financial system works well in the face of monetary instability. Happily, our financial system was flexible enough to have adjusted promptly to the events of Sept. 11. The banking industry played a major role in restoring the normal functioning of the payments system and limiting the financial damage of that event.
We sincerely hope that we never see a crisis like Sept. 11 again. But if we experience another shock, bankers and the public should know that the Fed is always on the job.