to europe next year, you will meet the euro wherever you go – because in just a few weeks it will exist in physical form. paris, rome, brussels or berlin : in most of europe, you will be able to pay with a single currency – euro bills and coins – starting on january 1, 2002. for you here in the united states, it is natural that the dollar is legal tender in all fifty states of the union. for us in europe, though, monetary union is a quantum leap, both politically and economically. in my speech i would like to address the following issues : 1. the historical background of the euro. 2. the essential features of the new system and its ramifications. 3. the future outlook for the euro – the political agenda. the historical background of the euro the euro is not quite as new as the title of my speech would lead you to believe. in fact, the euro is already a reality. the new european currency was born nearly three years ago when europe entered stage three of economic and monetary union. however, compared with the dollar and its long tradition, the euro is a “ rookie ” in the monetary policy league. however, this “ rookie ” took the field after going through a tough “ training camp ” on the field of stability. nearly five decades ago, far - sighted european politicians kicked off the drive toward european unification. sure, this drive has repeatedly been hampered by setbacks. however, the thrust towards greater integration has ultimately been unmistakable. european economic integration has been firmly established according to the principle of an “ open market economy with free competition. ” this was not as obvious back then, as it seems today. here in the united states, in particular, people might say “ what else? ” in europe, though, it would behoove us to keep reminding ourselves of what it takes for a market economy such as ours to function properly. only by paying attention to fundamental principles - personal responsibility, individual initiative, entrepreneurial spirit, and competition – can social equity be achieved ; and this is what is needed to overcome the severe structural problems that still beset europe. we europeans can learn much in this sphere from the united states. the latest and greatest step towards integration in europe has been entry into stage three of economic and monetary union. the euro - area countries have entered into a community of solidarity without any “ exit. ” there is no precedent for this unique project. in fact, it can rightly be called the

the leverage ratio, and there are also two new liquidity ratios, capital buffers, loss - absorbing capital and individual capital add - ons under the supervisory review and evaluation process ( srep ). these are worthwhile additions from a supervisory vantage point because they give us a tailormade toolkit to control the various risks which can cause a bank to fail. but for credit institutions, the new system means that their management systems now have to take into account not just one metric, but several of them. so a decision whether or not to grant a loan no longer depends solely on the return and the efficient allocation of equity, but also, for 3 / 4 bis central bankers'speeches instance, on the impact on the balance sheet structure, which is regulated by the net stable funding ratio ( nsfr ). the toughest challenge probably lies in coping with the interplay between the various minimum standards and the need to simultaneously adhere to minimum capital requirements, the leverage ratio, requirements for an institution ’ s liquidity and balance sheet structure as well as varying point - in - time and institution - specific criteria – on this magnitude, this is uncharted territory. what all this means is that the optimisation problem suddenly becomes much more complicated, raising the question as to whether compliance can be achieved by means of a simple equation. or does a more multifaceted approach need to be adopted? it is precisely this complexity which makes a smart approach to integrated risk management so crucial. there is the question, of course, of the levels which this integrated management approach ought to address. can different metrics be broken down to individual business activities? or does it make more sense to look at the bank as a whole or at portfolio level in order to identify risk drivers and render management measures more transparent? all this is forcing institutions to rethink both their operational and strategic set - ups. one aspect, i believe, is particularly crucial. institutions should not and cannot steer their business solely on the basis of compliance with the regulatory minimum requirements. even if i do have to concede that the rules which supervisors including myself have created naturally curtail the scope of management action. but there is nonetheless still a great deal of entrepreneurial scope which institutions can capitalise on – by running smart business models, by adopting innovative strategies, and by smoothly putting them into operation. business models that operate solely on the basis of satisfying the regulatory minimum requirements cannot be successful over the long run. adhering to the minimum requirements