The attacks on New York City and the Pentagon in Washington, D, C, on September 11, 2001, shocked the nation and the world. Hijacked passenger jets crashed into the Twin Towers of the World Trade Center in Manhattan, causing the death of 3,000 people and the destruction of multiple buildings and communications infrastructure. The attacks crippled the nerve center of the U. S. financial system. Information flow among banks, traders in multiple markets, and regulators was interrupted.
The disruptions particularly challenged the Federal Reserve, the central bank of the United States. When the attacks had begun, Roger Ferguson, Vice Chair of the Fed's Board of Governors, was the only member of the Board of Governor reachable by phone to make the immediate decisions facing the organization. Throughout that Tuesday morning and the rest of the week he led the Fed through one of its most challenging periods.
Questions faced Ferguson at every area of the Federal Reserve's responsibilities. Even the basic questions of leadership were murky - there were no provisions in the legislation establishing the Federal Reserve for a single governor to act. But Ferguson took on the challenges.
Under Ferguson's leadership, the Federal Reserve made a series of decisions designed to provide confidence and increase liquidity in a severely damaged financial system. Those decisions made extraordinary demands on the Federal Reserve, driving borrowed and non-borrowed balances over six times normal levels. In hindsight, were these the best approaches? Were there other options that could have taken place?
Publication Date: August 10, 2020
Citation: Jean Rosenthal, William B. English, Jaan Elias, "The Federal Reserve Response to 9-11," Yale SOM Case 20-029, August 10, 2020