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Payment system disruptions and the Federal Reserve following September 11, 2001

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  • Jeffrey M. Lacker

Abstract

The monetary and payment system consequences of the September 11, 2001, terrorist attacks are reviewed and compared to selected U.S. banking crises. Interbank payment disruptions appear to be the central feature of all the crises reviewed. For some the initial trigger is a credit shock, while for others the initial shock is technological and operational, as in September 11, but for both types the payments system effects are similar. For various reasons, interbank payment disruptions appear likely to recur. Federal Reserve credit extension following September 11 succeeded in massively increasing the supply of banks? balances to satisfy the disruption-induced increase in demand and thereby ameliorate the effects of the shock. Relatively benign banking conditions helped make Fed credit policy manageable. An interbank payment disruption that coincided with less favorable banking conditions could be more difficult to manage, given current daylight credit policies.

Suggested Citation

  • Jeffrey M. Lacker, 2003. "Payment system disruptions and the Federal Reserve following September 11, 2001," Working Paper 03-16, Federal Reserve Bank of Richmond, revised 2003.
  • Handle: RePEc:fip:fedrwp:03-16
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Operational Risk and Financial Stability
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2017-09-18 16:56:01

    Citations

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    Cited by:

    1. Jahangir Sultan, 2012. "Options on federal funds futures and interest rate volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 32(4), pages 330-359, April.
    2. Xavier Freixas, 2009. "Monetary policy in a systemic crisis," Oxford Review of Economic Policy, Oxford University Press, vol. 25(4), pages 630-653, Winter.
    3. Norman, Ben & Brierley, Peter & Gibbard, Peter & Mason, Andrew & Meldrum, Andrew, 2009. "Financial Stability Paper No 6: A Risk-Based Methodology for Payment Systems Oversight," Bank of England Financial Stability Papers 6, Bank of England.
    4. Daniel O. Beltran & Valentin Bolotnyy & Elizabeth C. Klee, 2015. "Un-Networking: The Evolution of Networks in the Federal Funds Market," Finance and Economics Discussion Series 2015-55, Board of Governors of the Federal Reserve System (U.S.).
    5. Jackson Evert & Arantxa Jarque & John R. Walter, 2018. "On the Measurement of Large Financial Firm Resolvability," Working Paper 18-6, Federal Reserve Bank of Richmond, revised 02 Mar 2018.
    6. Adam B. Ashcraft & Darrell Duffie, 2007. "Systemic Illiquidity in the Federal Funds Market," American Economic Review, American Economic Association, vol. 97(2), pages 221-225, May.
    7. Kei Imakubo & Yutaka Soejima, 2010. "The Microstructure of Japan fs Interbank Money Market: Simulating Contagion of Intraday Flow of Funds Using BOJ-NET Payment Data," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 151-180, November.
    8. Stephen D. Williamson, 2006. "Search, Limited Participation, And Monetary Policy ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 107-128, February.
    9. Richard J. Sullivan, 2012. "The Federal Reserve’s reduced role in retail payments: implications for efficiency and risk," Economic Review, Federal Reserve Bank of Kansas City, vol. 97(Q III).

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    Keywords

    Payment systems; Federal Reserve banks; Monetary policy;

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