Moody’s Investors Services hosted a conference call on the macroeconomic and financial impact of the World Trade Center disaster. Moody’s says the WTC attack had an unprecedented effect on financial markets, but that regulators have mostly managed to save the day.

Christopher Mahoney, group managing director, financial institutions & sovereigns, says the four-day closing of U.S. equity markets was unheard of, “Such a major disruption in the payments system and securities markets would have the potential to cause serious liquidity problems. However, the U.S. authorities have taken bold and appropriate steps to provide substantial liquidity to the system. As a result of these efforts, undesirable financial consequences have been prevented, and a liquidity safety net has been spread beneath the global banking system, the securities industry, and corporate borrowers.”

He notes that this performance by the regulators reminds market players of their importance in ensuring liquidity and financial stability. “With ample liquidity, confidence can be allowed to return, and markets can resume normal functioning.”

“The U.S. financial payments system is facing unprecedented challenges in the aftermath of the World Trade Center disaster,” says David Fanger, senior vice president. Fanger highlights the exceptional actions taken by the Fed to ensure that rules designed for normal market operations don’t impede the functioning of the market in an emergency scenario. “The Fed has used each of these tools at various times in the past, including the 1987 market crash, the Gulf War, the 1998 Russia Crisis, and the Y2K computer bug. However, the use of all these tools at once, as well as the magnitude of the Fed1s intervention, is clearly unprecedented. While highlighting the risks the system faces, these efforts also emphasize the Fed’s commitment to seeing the system through this crisis.”

“All things considered, the fact that fixed income and money markets were able to open at all last week is a remarkable testimony to the durability and resiliency of the infrastructure underpinning U.S. capital markets,” says Peter Nerby, senior credit officer. “We think the major U.S. banks and securities dealers have the wherewithal to make markets for their clients, and we expect these firms to weather this unprecedented short-term crisis.”

Nerby notes there are two important questions that can’t be answered yet. Exactly when will the physical infrastructure of lower Manhattan, and the technical infrastructure of various capital markets, be able to handle peak volumes again? And when will confidence and market psychology be restored to the point where trading volumes return to more normal levels?