Payment system disruptions and the federal reserve following September 11, 2001$

The monetary and payment system consequences of the September 11, 2001, terrorist attacks and the Federal Reserve’s response are reviewed. Interbank payment disruptions appear to be a central feature of many US banking crises, and interbank payment disruptions seem 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 withless-favorable banking conditions could be more difficult to manage, given currentdaylight credit policies. Paying interest on reserves would facilitate improvements in daylight credit policy. r 2004 Elsevier B.V. All rights reserved