As you say that was indeed a fateful day. And in some ways I think it ushered in the modern era of Federal Reserve crisis
management. So there are two or three things I remember about that day. One is there was a it was all about decision making
under great uncertainty. You really didn't know exactly what was happening and why. But we knew that we had to take important
action. And frankly the second point is we really didn't know whether we started. Whether or not the actions we were planning
to take or did take would end up success. Thankfully not. And so I think the stakes were high. The tension was very high. And the
third thing about today was it implicated almost every part of what the Federal Reserve does research monetary policy banking
supervision and regulation payments systems you know communicate community affairs you know government affairs everything was
implicated. And the final thing is we talk about as being a day at actually
the crisis and the aftermath went on for quite a period of time. And so there are several things that come to mind I think about
that period.
It's been forgotten to suddenly degree that actually the first statement the Federal Reserve issued on that day was that around
nine thirty five or nine forty. And that was a statement that said that the
Fed wire system was intact and still operating and would stay open as long as needed to clear all transactions. A very
technical statement that first statement and it basically said the part of the payment infrastructure the Fed operates would
still open and operating and that was important. We then got to the in that you're talking about and that was
really meant more broadly. And it said a few things that I thought were probably important. One was the Federal Reserve was
open and operating. You recall very well that many government offices were in evacuation mode. We're closing down. And I
thought it's really important to say that the central Bank of the United States was still very much open and operating. The
second part of it seemed pretty dry. Talk about this thing called the discount
window and liquidity needs. But for people in the market space that was basically saying you know the Federal Reserve stands
behind you. Somebody said that that simple sentence means that we were prepared to livery backup trucks and dump cash into the
system. I don't think there was issue of backing up trucks but we actually ended up dumping quite a bit of cash liquidity into
the system. And that was really important. And because during moments of crisis liquidity tends to dry up. You know you aren't
sure about the health of counter parties. Individuals run to ATMs to get cash. And so the fact that we are prepared to stand
behind all the liquidity or if you want to describe it more prosaically the cash needs of not just the U.S. economy but in
the global economy was also extremely important. And so and it turned out that reassuring people that were open and operating
and they were prepared to deal with all the liquidity needs necessary proved to be a very important statement that we made
shortly before noon on that day.
Let me start with the first part was the insistence that the Federal Reserve system stay open. Then the banks and then we'll
talk through the rest. And so I've already explained the importance of the Federal Reserve staying open.
And it wasn't sufficient that the board of governors be open because the Federal Reserve banks play then and play now an
important role in a number of elements of the payments system. Processing checks. Some something that really was something that
had happened across the country at various locations. Importantly getting cash into A.T.M. was something that is
happens at various locations across the country driven by the Federal Reserve banks. And this concept of a discount window
lending technically the discount window are really operated by the Federal Reserve Banks. And so the banks themselves were an
important part of the promise to provide all the at the necessary. And there was. But we had a discussion around 10:00
or 11:00 on that day. There was really quite a debate as to when that the banks were going to stay open. And so that was really
an important decision decision around the Federal Reserve banks in that.
This is an around commercial banks. During the course of the day there were informal conversations
among bank regulators other regulators about this question of should we recommend to the president the United States that he
declare a banking holiday that he closed or by law closed the banks for a short period of time. And there are some who argued
that was the right thing to do. I argued strongly and I do the ultimate successfully that that was the wrong thing to do.
Looking at the history whenever one closes banks it creates a great deal of uncertainty. The risk of a run on the bank goes
up. People concerned about being able to get their life savings out of banks. And so I was very clear that closing the
commercial banks creating a bank holiday at the presence order would have been undoubtedly horrifically bad step to take. And
fortunately you know I did prevail with Allah ISE in banking maybe rotary community.
We always think about setting interest rates as being one of the tools the traditional monetary policy and indeed on the Monday
following 9/11. The FOMC met and reduced the Fed funds rate quite significantly in order to underpin the economy. But 9/11
was also one of those days. In fact may well have been the first time that we decided
to use the balance sheet as a tool for financial stability. The way we chose to use it was through the point we made earlier
about discount window lending. The other ways we use it frankly had to do with what's called a float which is the amount of
check clearing. That was on our balance sheet before we moved it onto the balance sheets of the private banks and out the Fed
Reserve balance sheet. On that day it almost doubled from roughly 300 billion 400 billion to something closer to 800
billion. Seems like a small number today where we're talking about 8 or 9 trillion. But that was really the first time that
we had explicitly decided that we could use the expansion in the balance sheet as a tool. Obviously on that day clarity of
communication clarity of community intention was very important and that continues to be one of the tools. And then also you
know different kinds of lending. We focused on discount window lending. Obviously the system the Federal Reserve system in
conjunction with the Treasury has used lending capacity even more even more broadly. But I would say in many ways the
experience of 9/11 roughly about a week or so. I think one can see was
a precursor to the much broader use of exactly the same tools that we used back on 9/11. And in that sense there is a little
bit of a straight line from 9/11 as the first crisis of this decade and century to what the Fed has been dealing with
more recently. These are the the the virus.