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their activities, banks were understandably nervous about the health of securities firms in the wake of the unprecedented market movements. 9 in response, the federal reserve issued a statement affirming its readiness to serve as a source of liquidity to support the economic and financial system. the federal reserve underscored its commitment to providing liquidity by conducting open market operations in a high - profile manner and earlier than usual. 10 the federal reserve also communicated with market participants to support efforts to coordinate a market response ( greenspan, 1994 ). a discussion of this episode is in maisel ( 1973 ) ; brimmer ( 1989 ) ; and mishkin ( 1991 ). brimmer ( 1989 ) and mishkin ( 1991 ) also discuss this episode. carlson ( 2007 ) has a more detailed account of the federal reserve response to that episode. what is remarkable about this episode is the relatively limited amount of liquidity extended by the federal reserve : in the immediate aftermath of the crash, it temporarily injected through open market operations about $ 12 billion, which at the time was a notable but not exceptional amount. because the federal reserve acted promptly ( within a day ) to prevent the financial system from seizing up, banks were not as reluctant to lend their funds to securities firms as they presumably would have been in the absence of a stabilizing action from the central bank. thus, the fed did not need to lend directly to the banks to encourage them to lend to the securities firms that needed funds to clear their customers'accounts. confidence was restored, and the fear of crisis subsided quickly. the ability of the federal reserve to provide liquidity was also vital following the terrorist attacks on september 11, 2001, which disrupted payment, settlement, and communication systems needed to transfer funds among financial institutions. unable to receive funds for their normal operations, many of these institutions turned to the central bank. the federal reserve responded by injecting a considerable amount of liquidity into the system, both through discount window loans ( which soared from around $ 200 million in the days immediately before the attacks to a maximum of $ 46 billion ) and repurchase agreements ( which jumped from $ 25 billion to a peak of more than $ 80 billion ). further, the federal reserve helped facilitate the provision of dollar liquidity abroad by arranging swap lines with foreign central banks. thanks to these steps, credit continued to flow through the system during the episode, and serious macroeconomic consequences were avoided. the final episode of financial instability i