Deutsche Bank reveals role in 9/11 liquidity facility

Michael Reuther, global head of funding at Deutsche Bank, has revealed today how the European Central Bank and the Federal Reserve Bank of New York created an emergency €50 billion ‘synthetic’ liquidity facility in the wake of last year’s World Trade Center attacks.

Reuther, a keynote speaker today at Risk’s Asset/ Liability & Risk Management conference in Paris, told how he, together with Deutsche Bank’s group treasurer Detlef Bindert, approached the central banks with the idea for the facility on the morning of Wednesday September 12. At that point, it had become clear that the New York clearing operations of the Fed had been severely disrupted, especially by the near closure of Bank of New York’s clearing operations.

US dollars were effectively locked into the US clearing system, and the foreign exchange markets were also short of US dollars for the same reason. Deutsche Bank’s idea, which was also backed by large French banks including BNP Paribas, was to allow euros deposited with European central banks to be withdrawn in US dollars at the prevailing exchange rate by US customers of the European banks that were short of liquidity.

Banks significantly tapped the facility while it operated on Thursday, September 13, and Friday, September 14 and were charged a spread by the European Central Bank, with withdrawals charged at the Federal funds rate.