NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine.

This study was supported by a contract between the National Academy of Sciences and the Federal Reserve Bank of New York. The views expressed in this report and during the conference “New Directions for Understanding Systemic Risk” represent the authors’ own views and do not represent the views of the Federal Reserve Bank of New York, the Federal Reserve System, or the United States government.

Cover Illustration: The background image (in light blue) is adapted, by permission, from Figure 3 of Christopher J. Neely, 2004, “The Federal Reserve Responds to Crises: September 11th Was Not the First,” Federal Reserve Bank of St. Louis Review 86, no. 2 (March/April): 27-42. The six curves represent daily financial data in the months surrounding the stock market crash of October 19, 1987. The top five curves show the value of the S&P 500 index, the volatility of the New York Stock Exchange as implied by options prices, the yield on 10-year U.S. government bonds, the trade-weighted value of the dollar, and the federal funds rate target against three targets (shown as white dashed lines). The bottom graph shows U.S. official foreign exchange intervention, in purchases of millions of dollars. The vertical line through the six graphs denotes the date of the stock market crash.

This report is also being republished by the Federal Reserve Bank of New York.