the disappearance of 11 national currencies and the introduction of the euro as a major international currency had an immediate impact on the turnover and focus of attention in the global foreign exchange markets. this has been reflected, for example, in rather active and liquid euro / dollar trading in the foreign exchange market since the launch of the new currency. however, there are also indications that the euro has further potential to grow in other markets as the surprisingly slow development of euro / yen trading suggests. the euro can also be expected to become an attractive currency for the investment of official reserves. one of the key elements to further international portfolio diversification in favour of the euro is the creation of a large, liquid and integrated capital market in europe that began with the launch of the euro. for short - term instruments, we are now dealing with a broad and liquid european money market that ensures very similar short - term interest rates for comparable instruments and credit risks. the development of this market has been strengthened by the eurosystem ’ s operational framework of open market operations, which is mainly based on reverse transactions, and the implementation of the new target real - time gross settlement system in participating countries. at the longer end of the maturity spectrum, market integration was jumpstarted by the redenomination of outstanding government debt in euro and by the convergence of interest rates to narrower spreads following the elimination of the exchange rate risk. the elimination of this main risk will also foster the development of uniform market standards so that government bonds in the euro area will become rather close substitutes, creating a large and liquid bond market. obviously, this requires sound and sustainable budgetary policies that ensure that credit risk spreads remain small. concluding remarks following a remarkable period of disinflation in most member states, the eurosystem has had the good fortune to commence its operations in an environment of price stability. the success enjoyed by the euro in its first five months can be certainly attributed to a number of factors. above all, the successful efforts of member states made possible a smooth changeover to the euro. the independence of the ecb and the clear mandate to maintain price stability were crucial for ensuring a high degree of credibility of the eurosystem ’ s monetary policy. as a final observation, i should simply like to mention that without the positive echo of financial markets and the permanent support of banks and financial institutions, a single currency in europe could not have become a reality.

bank regulatory agencies and through a series of legislative changes culminating in the gramm - leach - bliley act of 1999. by the turn of the century, the depression - era cluster of restrictions on commercial banks had been replaced by a regulatory environment in which they could operate nationally, conduct a much broader range of activities, and affiliate with virtually any kind of financial firm. these changes enabled a series of acquisitions that resulted in a number of very large, highly complex financial holding companies centered on large commercial banks. at the same time, independent investment banks had grown into a group of very large, complex, and highly leveraged firms. of course, financial engineering had been rapidly changing the character of the financial services sector as a whole. among other things, securitization and associated derivative instruments were merging capital markets and traditional lending activities, thereby fueling the growth of the shadow banking system. the regulatory system had also evolved, notably through progressively more detailed capital requirements and increasing demands that banking organizations enhance their own riskmanagement systems. supervisors counted on capital and risk management to be supple tools that could ensure stability even as financial activities changed rapidly. truthfully, though, there was no wholesale transformation of financial regulation to match the dramatic changes in the structure and activities of the financial industry. in particular, the regulatory system did not come close to adequately accounting for the effects of securitization and other capital market activities on both traditional banking and systemic risk. meanwhile, as shown by the intervention of the government when bear stearns and american international group were failing, and by the repercussions from the failure of lehman brothers, the universe of financial firms that appeared too big to fail during periods of stress included more than insured depository institutions and, indeed, reached beyond the circle of firms subject to mandatory prudential regulation. the extension of funds by the treasury department from the troubled asset relief program and of guarantees by the federal deposit insurance corporation ( fdic ) from the temporary liquidity guarantee program to each of the nation ’ s largest institutions revealed the government ’ s conclusion in the fall of 2008 that a very real threat to the nation ’ s entire financial system was best addressed by shoring up the largest financial firms. regulatory reform : the consensus to date the crisis thus arose against the backdrop of a regulatory system that had not adjusted to the extensive integration of traditional lending with capital market activities, which had created new sources of systemic risk. the already significant too - big - to - fail