By Kevin Fitzsimons During his Jan. 22 lecture, Stephen Cecchetti credits employees of the U.S. Federal Reserve Board for the smooth continuation of financial services after the terrorist attacks Sept. 11.

Unlikely heroes kept U.S. financial system afloat after Sept. 11

By Jeff Grabmeier, Research Communications

When Americans went to withdraw money from their banks on Sept. 12, 2001, or used a credit card to buy groceries, they didn't have any problems or notice anything out of the ordinary.

But given the events of the day before -- when terrorists destroyed the World Trade Center in New York City -- the fact that our monetary system worked normally the day after was actually quite a feat, according to Stephen Cecchetti, professor of economics.

In his University Distinguished Lecture on Jan. 22, Cecchetti discussed how the employees of the U.S. Federal Reserve Board made sure our banks and credit cards all worked on Sept. 12 in spite of the monetary chaos caused by the terrorist attacks.

"Imagine what would have happened if, following the terrorist attacks, you had gone to make a withdrawal at the bank machine and no cash had come out," Cecchetti asked during his lecture. "That would have created pandemonium. And there was the potential for that to happen."

While the Federal Reserve gets public attention mostly for its work controlling inflation and promoting steady economic growth, it also has the duty of protecting the stability of the nation's financial system, he said. And that is the role that it played following Sept. 11.

The Federal Reserve Bank of New York -- one of 12 Federal Reserve banks around the country and the only bank where some key functions take place — is within a half mile of the World Trade Center. Although the building itself wasn't destroyed in the terrorist attack, it became inaccessible. Other major banks and financial institutions, including the New York Stock Exchange, were shut down or destroyed as a result of the attack.

"Let's just say the financial community was absolutely devastated," Cecchetti said.

The devastation took several forms. For example, the check-clearing system run by the Federal Reserve uses airplanes to fly checks around from its various banks around the country. And with the airlines shut down, this system ground to a halt, causing a variety of financial problems for banks around the country.

The Federal Reserve in New York also has an electronic interbank payment system called Fedwire that was temporarily shut down. This was a crucial loss because about 12,000 banks connected to Fedwire send more than 400,000 payments each day to other banks. In fact, the banks send an astounding average of $2 trillion in payments over Fedwire every day.

Cecchetti said banks regularly send payments early in the day over Fedwire, expecting to receive payments later. They are allowed to overdraw their Federal Reserve accounts during the day and they regularly do. But they have to pay up their Federal Reserve account by the end of the day.

"This system creates a substantial amount of interdependence -- banks are counting on each other to send payments through the system," Cecchetti said.

But when the terrorist attacks occurred and the Fedwire system stopped, the banks were faced with a serious problem.

"Suddenly, banks could not be sure that they would receive payments, and so they were unwilling to send them out. Some banks couldn't make payments at all," Cecchetti said.

This is more than just a problem for the banks -- it could have affected every one of us, he explained.

If the system stops working properly, then some banks will make payments and not receive them. Unless they can find funds, this will deplete their account at the Federal Reserve and they won't be able to function.

"And if a bank runs out of its reserve account, it can no longer provide services to us, the consumers," Cecchetti said.

However, the Federal Reserve has made contingency plans for emergencies, and they went into effect almost immediately after the terrorist attack. Alan Greenspan, the chairman of the Federal Reserve Board, and other leaders were out of the country on Sept. 11, but that wasn't a major issue.

"There were people at the Federal Reserve who had the power to make decisions, and what needed to be done was apparent to anyone," Cecchetti said. What needed to be done was to add money to the system.

To make sure there would be enough money in the banking system on Wednesday, Sept. 12, about 20 people slept on the floor of the Federal Reserve building in New York on Tuesday night. Nearly immediately, contingency plans went into effect. The goal was to make sure that banks had enough money in their reserves. In fact, banks were encouraged to borrow. The Federal Reserve did many things to add liquidity to the money supply, including engaging in a complex transaction with the European Central Bank to exchange euros for dollars temporarily.

The end result was that our banks, our credit cards, and the rest of our financial system still worked on Sept. 13 and beyond.

"The Federal Reserve made sure banks could make their payments, so that the banks would be confident enough in their position to let all of us make our transactions," he said.

Cecchetti called the workers in the New York Federal Reserve office the "unlikely heroes" of Sept. 11. "These are people almost no one knows about even now, but without whom we would have all been in serious trouble."

The University Distinguished Lectureship recognizes outstanding faculty at Ohio State, giving recipients the chance to discuss their work with the community and a $5,000 award to support an academic program or project of the lecturer's choice. Cecchetti is using his award to support the Mershon Center's program on political economy.

Pedestrian safety is a priority for Transportation and Parking

By Randy Gammage, onCAMPUS staff

The combination of winter weather and an increase in traffic due to the Lane Avenue and Woody Hayes Drive bridge projects has campus officials calling for caution on the part of pedestrians and drivers on campus.

Speed limit reductions, an increased police presence and concrete barriers are part of a public safety campaign led by Transportation and Parking Services to control campus traffic until the bridge projects are completed in mid-2004.

"What we're trying to do is to increase awareness, so that pedestrians will use crosswalks and not just cross wherever they want to and motorists will use caution and slow down and watch for pedestrians," said Transportation and Parking Director Sarah Blouch.

Heavy vehicle traffic caused by construction equipment, detours and lane closures, combined with the usual heavy flow of pedestrians, already had the attention of campus officials. Concern elevated when a pedestrian was struck and received minor injuries Jan. 14 when crossing Woody Hayes Drive at Fyffe Road around 10 a.m. The incident occurred outside of a crosswalk in an area where orange barrels are a dominant feature, Blouch said.

Two other pedestrians were hit in crosswalks within the past year — one at 10th Avenue and Cannon Drive, the other crossing Cannon at the polo field lots. That compares to one report of a pedestrian being struck in the seven-year period prior to that.

"When you think about it, the Ohio State campus is a safe place to be," Blouch said. "The concern is the confusion brought on by the construction and the winter weather."

As has been done in other areas of campus, there will be an increased police presence on Woody Hayes Drive and Fyffe Road monitoring those who choose not to use the crosswalks. Those individuals may be cited by police for jaywalking and given a fine, said University Police Chief Ron Michalec.

"We did this on Cannon Drive to help reduce the problem and it has been effective, with an occasional reappearance of a marked cruiser," Michalec said.

The speed limit between Cannon and Fyffe will be reduced from 25 mph to 20 mph in the construction area, and University Police will be monitoring pedestrians who are not using the crosswalks and the speed of motorists to ensure safety, Michalec said.

Additionally, a police presence in the area will be maintained during the morning and evening hours to discourage the frequent practice of motorists bypassing a bus and making a right turn off Woody Hayes Drive from the left lane.

Transportation and Parking will move their programmable signboards into the area with the message "Slow Down, Watch for Pedestrians" to help alert motorists. Additional signs will be posted directing pedestrians to use the crosswalks and to take care when crossing the street, Blouch said.

The contractor handling the bridgework has positioned concrete barriers to delineate traffic lanes, rather than the orange barrels previously used. These barriers will allow pedestrians to cross Woody Hayes Drive only in designated crosswalk areas. Blouch said pedestrians previously could cut through the barrels and cross anywhere they liked.

For more details, contact Transportation and Parking at 292-9341, or visit its Web site at www.tp.ohio-state.edu.

To receive regular construction updates, subscribe to a listserve by sending an e-mail message to listserv@lists.acs.ohio-state.edu, or visit the University Architects Web site at www.apo.ohio-state.edu.

Caution areas
Particular areas of concern, due to construction, heavy pedestrian traffic, or both, are: Woody Hayes Drive between Fyffe Road and the Olentangy River (also known as the Agricultural campus) Cannon Drive between Ninth and 12th avenues Woodruff and College avenues Ninth Avenue and Belmont Street