We have great confidence in the ability of the banking system to promote the best banking and cautionary practices; however, I believe that preemptive action is needed to ensure that latest observed trends do not hamper financial stability. Therefore, we cannot neglect improving our legislative, regulatory and prudential measures as a major element of financial sector reforms in Albania. 2  BIS Review 121/2006  In this regard, a new Draft Banking Law is prepared by Bank of Albania; likewise, a new Law on Securities will be introduced shortly. In addition, efforts are underway to revise legislation on Pension and Investment Funds, and draft a Law on the Payments Systems, which will substitute several sublegal acts issued by the Bank of Albania until now. This process aims at gradual harmonization of the banking legislation with that of the Acquis Communnautaire. To address issues of increased competition, poor managerial practices and safeguard stability, the Bank of Albania is working toward establishing a Credit Registry, revising regulatory framework on capital adequacy ratio and credit risk management, increasing on-site supervision, and improving its stress-testing models. Following Financial Stability and Assessment Program (FSAP) recommendations, a separate entity “The Authority of Financial Supervision”, has been established recently to supervise the securities, insurance and pension funds markets. Last but not the least, I would like to address the implementation of the Basel II accord. While it will shape the financial market, I believe it will pose challenges to our banking system and to us at the moment.
That being so, central banks may be able to stabilize demand and output growth more effectively than in the past. Most obviously, cuts in interest rates are now much more likely to be understood as a response to an adverse demand shock rather than as attempts to generate extra demand and jobs in the short run at the cost of stoking up higher medium-term inflation. And so it is easier for central banks to cut interest rates when that would desirable in order to stabilise demand conditions and so keep inflation in line with the target. Related to that, greatly increased transparency across the central banking world makes policy surprises – and so outsized market reactions to policy decisions – somewhat less likely. Second, more competitive and transparent product markets (partly thanks to the internet), together with more flexible labour markets, may have improved the real economy’s ability to absorb nasty shocks without persistent large falls in output. Third, developments in banking probably mean that more households have access to credit to help them to smooth their consumption by borrowing during ‘bad times’. And by routinely distributing more risk to non-banks, the banking system may be less likely to wish or need to conserve capital, refraining from taking risk, when faced with increased demand for liquidity from its corporate and household customers. For these reasons, consumption growth may be less prone to violent lurches than during, say, the 1970s and 1980s.