Ardian Fullani: Recent regulatory amendments in Albania – causes and expectations Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the forum with the Albanian banking system on “Recent regulatory amendments: causes and expectations”, Tirana, 28 February 2014. *  *  *  Dear bank executives, Dear participants, I would like to welcome you to this discussion forum between the Bank of Albania and the banking system. The topic of discussion for this roundtable is to inform you on the recent decisions of the Supervisory Council of the Bank of Albania in more details. We are on the last day of the second month of 2014 and we are all witnessing an intensive period of discussion and suggestions between Albanian authorities on the one side and international institutions on the other. Recovery of economic activity, potential structural reforms, lending to the economy, and financial soundness have been at the core of the discussions. Taking into account its role and significance in decision-making, the Bank of Albania has been an important part of them, materialising its contribution with a number of decisions relating to both macroeconomic and banking supervision. Following, I would like to share with you in brief the reasons, expectations and the way we will monitor this decision-making. 1. Decision-making on monetary policy and money market operations  As we have constantly informed, the Albanian economy is facing cyclical weakness.
On that basis, it was possible to build a whole architecture of asset prices, whose relative riskiness is determined according to the intrinsic characteristics of assets and investors’ risk appetite. The important word here is “relative”. To price financial assets, markets need a basis – a risk free rate. That basis has now been shaken. Immediate consequences seem benign in the US. Markets have judged, and rightly so, in my view, that there is currently no alternative to US debt as the most liquid market and it remains the ultimate benchmark for assessing risk. So, if anything, the downgrade of US debt was followed by new inflows into Treasuries and a decrease in US interest rates across the yield curve. At the same time, however, a pervasive uncertainty has been created, which might be  BIS central bankers’ speeches  1  responsible for the strong decline in confidence and equity prices that has occurred over the last weeks. In Europe, of course, sovereign credit risk has had more immediate and dramatic consequences, with an abrupt increase in sovereign spreads for peripheral countries following the July 21st statement. It remains difficult to foresee how, in the longer run, markets will assess debt sustainability in different countries and jurisdictions. That assessment depends on a complex process, where, together with economic fundamentals, subjective probabilities, self-fulfilling beliefs and other influences play a major role. The certainty that debt would be paid in full strongly anchored market perceptions in the past.