Open and operating: providing liquidity to avoid a crisis

In the past, the US financial system did not fare so well during periods of unusually high liquidity demand. Before the Federal Reserve System was established, financial crises had far-reaching and longer-lasting effects. To understand how bad the economic repercussions of liquidity crunches used to be, this article examines the banking crises that occurred during one of the times when the US had no central bank - an era referred to as the national banking period (1863-1913). Although the Fed is not the only institutional difference between now and then, looking at these earlier crises might help us appreciate how the Fed was able to avert a financial crisis on 9/11, when the heart of the nation's financial infrastructure was attacked.