, disruptions in the connectivity of communication lines and the shift to backup sites caused delays in payments and settlements, with billions in funds building up at a small number of participants unable to send out funds covered by similar amounts of federal reserve open market operations, overdrafts, and loans to those who could not receive. to facilitate the channeling of dollar liquidity to foreign financial institutions operating in the united states and to meet all appropriate demands for dollar liquidity, thirty - day currency swap lines were arranged with major central banks, again in record volume. fed and bank balance sheets ballooned with the maldistribution of reserves, and domestic and foreign operations, but there was no fear of either credit or liquidity risk. fed funds borrowers and lenders, forced to deal directly because brokers were temporarily unavailable, quickly reached agreements to trade at the targeted federal funds rate. similarly, in response to losses of personnel and equipment at some participants, dealers agreed voluntarily to extend settlement in the treasury market to t + 5. crucially, lenders - - banks in particular - - stepped up to meet their commitments, real and implied, to avoid the disruptions that were a large part of the terrorists'objective. the list of adjustments and innovations goes on and on. but the point is clear that we are blessed with a financial system that is creative, that is flexible, that is innovative. banks - - including the central bank - were there when they were needed and did what was required with dispatch. we should be proud of the banking system's role in minimizing the economic fallout of that tragic day.

markets include the continued broadening and expansion of derivatives markets. the broadening of these markets has largely come about because rapid advances in technology, financial engineering, and risk management have helped to enhance both the supply of and the demand for more complex and sophisticated derivatives products. the increased use of derivatives to adjust exposure to risk in financial markets has also contributed to the rise in the notional amounts of outstanding derivatives contracts seen in recent years, in particular in over - the - counter ( otc ) derivatives markets with interest rates and equities as underlying securities. while the leveraged nature of derivative instruments poses risks to individual investors, derivatives also provide scope for a more efficient allocation of risks in the economy, which is beneficial for the functioning of financial markets, and hence enhances the conditions for economic growth. among the many changes in global financial markets, developments in the euro area have been particularly striking. recent trends in euro area financial markets the launch of the euro on 1 january 1999 was a historic event. eleven national currencies were converted into one single currency overnight. it marked the start of a period of profound change in europe ’ s financial landscape. the successful launch of the euro, which is a key element in the creation of a stable, prosperous and peaceful europe, has also boosted the integration of financial markets in the euro area. this process of integration in european financial markets coincided with the trend towards globalisation. both these factors help to explain current developments in europe ’ s financial markets. the main catalyst behind the huge changes that have taken place, and continue to take place, has, of course, been the arrival of the single currency. in january 1999, foreign exchange and interbank markets immediately switched over to the euro. at the same time, a single monetary policy was established, with a uniform policy implementation framework for all euro area countries. furthermore, a unified payment system was introduced, providing for real - time gross settlement transfers throughout the euro area. as regards euro area banks, the transparency brought about by a single currency and a single monetary policy makes it easier for customers to compare bank products and costs. this, in turn, will foster competition among banks. although this increased competition will lead to lower bank margins, it will promote restructuring and consolidation among banks in the euro area, which will help them to compete globally. in fact, these events are already happening : banks all over europe are merging or forming alliances on an unprecedented scale, thereby drastically changing the national banking environment and creating international networks