we could only estimate the amount and geographical dispersion of the euro ’ s legacy currencies, notably the deutsche mark, in those countries. the cash changeover provided an excellent opportunity to bring out into the daylight the large amounts of deutsche mark that were stashed away under mattresses in these countries and that had to be exchanged into euro at the beginning of 2002. net shipments of euro cash by euro area banks point to an outstanding stock of euro cash in non - euro area countries of at least €46 billion in mid - 2004. in addition, euro - denominated deposits in a number of countries neighbouring the euro area increased substantially in the wake of the cash changeover, when households transformed a large part of their euro legacy - currency holdings into euro - denominated deposits in the respective banking systems. this analysis of developments over the past five years leads us to the following three main conclusions : first, the international role of the euro has increased significantly, though rather gradually ; second, it is based on a strong regional focus, notably on the regions near the euro area ; and third, it was driven by substantial demand from euro area investors for euro - denominated bonds issued by non - euro area residents. iii. 3. the outlook for the international role of the euro this is where we stand after five years. what are the prospects for the international role of the euro? the internationalisation of a currency is a very gradual process, characterised by considerable inertia. for example, in foreign exchange markets, this inertia is caused by “ dynamic economies of scale ” and “ network externalities ”. these processes tend to transform an existing situation into a permanent one, as any shift from the use of one currency to another would require a significant shock. a further relevant example in this context is provided by the invoicing of commodities. the internationalisation of the euro, like that of any other currency, is largely a market - driven process. whether or not the euro is used outside the euro area for financing, investment or invoicing purposes is a matter of economic agents ’ preferences. the eurosystem ’ s policy is to neither support nor hinder the international use of the euro. this should not be interpreted as a policy of “ benign neglect ”, for the ecb can contribute to the euro ’ s internationalisation in various ways : first and foremost, by maintaining price stability in the euro area and safeguarding its internal purchasing power. and we

estimate the total losses over the period 2007 - 2010 to be around usd 650 bn. write - downs on securities have so far amounted to over usd 200 billion. banks have provisioned and written off over usd 150 bn of their loan exposure. therefore we estimate further potential losses to be a little below usd 300 bn. half of the losses worldwide are estimated to be borne by us banks, a quarter by euro area banks, and another quarter by banks located in switzerland and the uk. • if we want to re - establish economic and financial stability, we need to develop the lessons from the crisis. to this end it is important to recall what triggered the crisis. low inflation rates and robust growth in the context of global imbalances, as well as abundant liquidity, were the main drivers at the macroeconomic level. at the level of the financial system it was regulatory arbitrage, deterioration in credit standards and increased reliance of banks to fund their assets in short - term markets. • thus, the crisis is a consequence of a combination of failures both in financial markets and on the part of regulatory authorities. despite market failure having been one factor, we must not forget that market participants have simply behaved in line with the incentives provided by regulatory authorities. in this respect, improved regulation and oversight of financial markets will be crucial to ensure economic and financial stability. in particular, sound balance sheets, solid risk management and transparent and robust business models are key in strengthening the financial soundness of banks and their resilience to shocks. the first line of defence of financial stability is with market participants. to provide for the right incentives, market participants must be liable for their actions. this is an essential condition for sustainable economic growth and financial stability. • at the same time, we need to develop the financial system further. to enhance transparency, we need to reduce the complexity of the financial system, institutions and products. • the crisis has painfully shown that ensuring solvency of individual financial institutions does not ensure stability of the financial system as a whole. when funding markets shut down, both solvent and insolvent institutions are hit. neglecting such wider systemic issues has been one of the glaring inefficiencies of prudential regulation. too great an emphasis has been placed on micro - prudential rather than macro - prudential aspects. initiatives are now being taken to close the gap that exists in this respect, especially in europe, where cross - border supervision is still a challenge. where do we