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How the Fed Fought Sandy

The offices of the Federal Reserve banks of New York and Philadelphia are nearly empty. But the staffs of the banks, as well as the Board of the Federal Reserve in New York, are working from home to keep the U.S. financial system flowing smoothly.

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Many Fed staffers are telecommuting, much like their counterparts in the private sector. A few critical staff members spent the night at the Federal Reserve Bank of New York. The Federal Reserve Bank of New York managed to remain open throughout the hurricane and its aftermath. The Philadelphia Fed and the Baltimore branch of the Richmond Fed closed Monday. (Read More: Scenes From Hurricane Sandy)

One of the things the Fed does in the lead up to a potential crisis is work with banks to anticipate and meet an unusual demand for cash. I personally withdrew far more cash than I would in a typical week, in part because I feared power outages would restrict access to ATMs, bank tellers and credit card purchases. Many others did the same. (Read more: Sandy Wreaks Havoc, Economic Impact Not Yet Clear)

Federal Reserve banks and branches typically extend hours of their cash windows, allowing commercial banks more time to get armored trucks to pick up cash. In addition, they allow banks to withdraw cash from other parts of the Fed if the bank or branch they typically use is inaccessible. For example, a bank in Northern New Jersey that would normally be served by the FRBNY would be allowed to withdraw cash from the Philadelphia or Boston Fed if it weren't able to access Manhattan.

While this isn't the sort of thing that banks in the Northeast are used to, it's quite common in the Gulf region, so there's nothing particularly novel or challenging about this kind of substitution operation.

So far there haven't been any known disruptions or currency shortages, and very likely there will not be. Except, of course, for those caught short of cash in an area where blackouts have shut down ATMs.

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