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May 24, 2013

Historical Echoes: Seeing through the Blackout of 1965 and Other Trials

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.


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

Comments

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I think,When the Lights Went Out, it is surreal and gloomy picture…

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