Amy Farber

In November 1965, the northeastern United States experienced a thirteen-hour blackout—the biggest in history to that date. Life magazine did a spread (p. 36) with some surreal and gloomy pictures of stranded, dazed, well-dressed passengers sleeping every which way all over New York City’s Grand Central Terminal. A book was written that same year by the staff of the New York Times, When the Lights Went Out, which describes in detail how people and various agencies in New York had to cope and make emergency adjustments.
     On page 57, the book begins to describe the problems banks faced the day after the blackout and adjustments made by the New York Fed:

For bankers, trudging late to their offices in the city, the day was cause for weeping. They moved quickly to unsnarl the mountain of unsorted checks that piled up during the blackout. In a typical twenty-four-hour period, the city’s eight major money-market banks—plus the Federal Reserve Bank of New York—clear or sort some five million checks, representing a total dollar value of seven billion to ten billion. Practically all of this is done by computers that read magnetic characters imprinted on the checks. But these mazes of wires and circuits were cold and still Tuesday night. Auxiliary power systems, which kept lights burning at most of the banks and time locks operating on head-office vaults did not have the muscle—and, in some cases the proper current—to keep the check-clearing process going.

The banks faced a two-fold problem in their cleanup. First, was the purely mechanical business of catching up with the sorting. This phase they handled with little difficulty. Second was the more complicated problem of offsetting a vast—though undoubtedly temporary—increase of credit in the banking system that was certain to result from the check-clearing snarl. Normally, the Federal Reserve System gives credit to its member banks for checks that are in the process of clearing within two days after they have been deposited initially, whether or not they have been actually presented to the bank on which they have been drawn. Thus, a slowdown of the normal clearing process, such as occurred during the blackout, leads to a big increase in the so-called “float,” the credit granted on such uncleared or floating checks. The Federal Reserve left its two-day rule standing. But several other things were done to ease the clearance problem. The New York Clearing House Association, which handles the bulk of clearing within the city, scheduled three special times for its members to exchange checks. In addition, the Clearing House extended for a day, the deadline within which the Monday, Tuesday and Wednesday items could be presented. Usually these items have to be in by the next business day after they are deposited. For its part, the Federal Reserve Bank of New York said that in view of the difficulties the banks had encountered, it would not impose penalties on banks that failed to maintain their legally required reserves during the statement week that ended Wednesday.

     In more recent times, the New York Fed has faced similar challenges not attributable to financial events. Recall the twenty-five-hour blackout of 1977 (depicted in Spike Lee’s film Summer of Sam), when “there was a stillness on Wall Street” (p. 6) as “Wall Street’s banks, brokerages, and stock and commodities exchanges shut down for a day” (p. 14). Then there was 1981’s four-hour blackout in lower Manhattan—when, thanks to the Bank’s backup generators—its computers failed for only twenty-seven minutes. After the 9/11 attacks, a Fed credit extension succeeded in ameliorating the financial effects of the shock. And during the Northeast Corridor blackout of 2003, the New York Fed’s payment systems and open market desk functioned normally.

     The Bank was also impacted by October 2012’s Superstorm Sandy. It stayed open during and after the storm, but the storm did result in minor changes in open market operations, and many of the staff worked remotely.



Disclaimer
The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

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Amy Farber is a research librarian in the Federal Reserve Bank of New York’s Research and Statistics Group.