In addition, to strengthen supervisory framework in line with financial and risk structures of financial groups, consolidated supervision will be phased-in in two steps: first is to introduce qualitative measures this year which have already been done, and the second is the implementation of the quantitative measures by 2010. To conclude, conditions in the global economy and global financial markets have become more challenging. So, this calls for a time of greater caution as we move forward. Also, this means the ability of the banking sector to withstand shocks will be an important prerequisite for any economy in managing the spillovers from the slowing global economy and volatile  2  BIS Review 111/2008  financial markets. In the Thai case, the strength and the resiliency of the banking sector is with us, and thus they should be well placed to weather the turmoil, without adverse effects on their roles in supporting the economy and in maintaining financial stability. Thank you for your attention. BIS Review 111/2008  3
In this respect, the concept of financial stability was seen as a by product of monetary stability. Economists believed that by stabilizing consumer prices, financial assets would also behave in a stable and predictable way. The crisis painfully reminds us that: this is not necessarily true. Behaviour in financial markets is not always rational and lack of confidence in the markets can spiral out of control, sending shockwaves throughout the economy. Fortunately, the Bank of Albania adopted a more conservative approach considering monetary policy and financial stability issues simultaneously, conditioning either decisionmaking process by the other one. Due to this behaviour, the crisis had a direct but trivial impact on the financial system. Despite this, the banking system faced immediate difficulties in the form of deposit withdrawals, emerging as indirect effects of fear contagion and irrational expectations. The liquidity problems that emerged spilled over to the credit market and later to the real economy and foreign sector. The Bank of Albania reacted quickly to this changing economic climate. Liquidity was abundantly injected to our banks and more stringent regulations were applied in regard to the transfer of funds. However, unlike in most other countries where monetary policy was used initially to boost aggregate demand, in Albania, monetary policy stayed in its course giving way to expansionary fiscal policy. Due to a relatively long period of consolidation, fiscal policy at the outburst of crises had abundant room for manoeuvre and has a more direct impact on the economy.