Corrigan feared a shutdown would cause more panic. The market was at one point down another 250 points, and that's when the debate with Phelan took place. Simultaneously, Corrigan and other central bank officials spoke privately with the big banks and urged them not to call loans they had made to Wall Street houses, which were collateralized by securities that could no longer be traded and whose value was in question. A final critical moment came that day when the Fed decided not to shut down a subsidiary of the Continental Illinois Bank that was the largest lender to the commodity futures and options trading houses in Chicago. The subsidiary had run out of capital to provide financing to that market.
Investors use stock futures and options to hedge positions in the underlying stock market.
Recognizing the crucial role of banks if another financial crisis should strike, the Office of the Comptroller recently conducted an internal study of what damage a market decline would inflict on U.S. banks. The OCC declined to discuss the study or its conclusions. At the SEC, one big worry is how to cope with an international financial crisis that begins abroad but quickly rolls into U.S. markets. To improve its ability to react in a crisis, the SEC and the Fed have begun joint inspections with their British counterparts of U.S. and British financial institutions with global reach. That would require a majority vote of the commission.