The euro's arrival in 1999 brought about fundamental changes in the way governments, financial institutions and the private sector operate in the financial markets in the euro area and the rest of the world.
By deterring liquidity panics, the safety net shields the overall economy from some of the worst effects of instability in the financial system. These benefits, however, are not without costs. The prospect of government intervention distorts market prices and may also engender excessive risk-taking. The Federal Reserve works to reduce these distortions by enhancing market discipline and limiting expectations of government intervention.