the attacks – including the two world trade center towers – housed many financial firms and constituted an important part of the infrastructure of financial markets. the events of that day could have disrupted those markets and the activity that they financed for a considerable time. instead, we learned once again that the financial sector is enormously resilient. in many cases, people needed only a cubicle and a computer to return to work. in contrast, restarting an airplane factory or an auto factory if its production had been disrupted would have taken an extremely long time. such resumption of business by financial firms depended on careful planning in advance, on backup data, on software, and so forth. to be sure, securities markets and transactions, particularly the clearing and settlement in the government securities markets, were disrupted for a period. but financial markets and firms adapted and responded, contributing to the quick resumption of normal business. the fed, too, had many challenges at that time. one was that vice chairman roger ferguson was the only board member in washington d. c. on september 11. the chairman was in basel, i was in beijing, and the two other governors were elsewhere in the united states. this didn't diminish the ability of the federal reserve system to respond quickly and effectively. the vice chairman, together with the reserve bank presidents and staff members at the board and the reserve banks, did a superb job. we wore many hats on that day and the days immediately following. first, we acted as the provider of liquidity. normal channels of borrowing and payments were disrupted. some banks that were counting on receiving funds had to rely on the federal reserve instead. security firms and businesses impeded in their usual borrowing turned to the banks, and, for primary dealer firms, to federal reserve open market operations, increasing the need for extra federal reserve liquidity. the vice chairman issued a brief statement immediately after the attack that signaled the fed's readiness to supply liquidity as needed : " the federal reserve is open and the discount window is available for meeting liquidity needs. " we used every existing vehicle for injecting liquidity and even invented a new one - - the use of large swap lines with foreign central banks to inject dollar liquidity. discount window loans soared instantly from around $ 200 million to a peak of about $ 45 billion on september 12 and later, as markets began to function better, federal reserve repurchase agreements soared from $ 25 billion to nearly $ 100

target funds rate relative to expectations already embedded in the financial markets and on changes in those expectations as a result of policy actions, statements accompanying those actions, and other developments. other things being equal, a decline in the funds rate will lower short - and long - term private interest rates, raise equity prices, and depreciate the dollar. the combined effects can be quite powerful. in the current episode, however, other things have not been equal, and the dollar has not depreciated nor has the stock market appreciated. of course, monetary policy presumably wouldn't have eased so much if the dollar had depreciated or the stock market had risen. at any rate, there has been painfully little pass - through from the funds rate to the operative channels, other than declines in private short - term interest rates. the absence of pass - through does not reflect a change in the fundamental effectiveness of monetary policy so much as the offsetting effect of other financial shocks that were occurring at the same time the fed was easing. one way of quantifying the degree of pass - through is to compute a financial conditions index that combines the effects of all the transmission channels into a single number. goldman sachs and macroeconomic advisers have developed differing methodologies for computing such an index. basically, they weight changes in various financial conditions by their relative importance as determinants of private spending. the message from such indexes is that financial conditions have not improved since the fed began to ease and, indeed, may even have deteriorated. the response of overall financial conditions to monetary policy easing in this episode has been unusual, if not unique. in previous recession periods, financial conditions have generally improved as the fed has eased, reflecting the pass - through to lower short - and long - term private rates, higher equity prices, and a lower exchange rate. the major reason for the failure of financial conditions to improve in this case is that one of the major shocks - - the reassessment of the profitability of owning and producing high - tech equipment - - was, at the same time, a shock to financial markets and to aggregate demand. the financial shock was the revaluation of equity values as a result of this reassessment - - the bursting of the equity bubble in the technology sector. in addition, the dollar appreciated rather than depreciated, for reasons no one seems to fully understand. so two of the key channels in the transmission of monetary policy behaved differently than expected