But let me sketch three broad areas that seem important to us. First, successful transition away from LIBOR in its current form will unbundle the risk-free and bank sector credit risk elements of the interest rate curve. Including compensation for banking credit risk may have made eminent sense for those syndicated loans made in the 60s and 70s, without greatly affecting variation in the level of LIBOR (as shown in Figure 1). But many LIBOR-linked instruments no longer directly involve banks, yet remain exposed to variations in the perception of bank risk seen in the past decade. That does not reflect an efficient allocation of risk in the economy, and poses material economic and distributional risks at times of stress, as we saw during the financial crisis.
Our regulations, which restrain the banking business operational, liquidity or market risks, are in full compliance with the international standards, providing at the same time enough room for the development of the interbank market. We have also taken major steps in terms of the institutional development of this market, through the establishment and maintenance of TRIBOR and TRIBID reference rates, through constant communication with the dealers’ association and promotion of new interbank market instruments. I would like to inform you today of the last Bank of Albania’s step in this regard, and also ask for your greater attention in terms of taking prompt actions that will boost the activity and role of the interbank market. Change of the Bank of Albania’s operational target framework The Bank of Albania is in the final phase of reviewing its operational targets. The latter will soon change their form, shifting from the quantitative targeting of the Bank of Albania’s balance sheet to the targeting of interbank market interest rates. The operational targets of monetary policy play a key role in the formulation and conduct of monetary policy. In a theoretical background, these targets serve as a link between the monetary authority’s interventions in the interbank market and the intermediate target of monetary policy. Thus, the operational targets serve as the starting point of the monetary policy transmission mechanism. In practice, these targets serve to steer and discipline the monetary authority’s interventions in the money market quantitatively.