Through regulatory and supervisory interventions, we aimed to improve the commercial bank’s governance and their transparency, to strengthen their risk assessment and risk mitigation strategies, to improve the capital adequacy and liquidity ratios, as well as to reduce the exposure to credit risk stemming from un-hedged borrowers in foreign currency or predatory practices from commercial banks. On the same line, our policy response during the crisis was cautious, prioritizing financial stability and the preservation of inflation expectations to outright economic stimulus. By the beginning of the first quarter of 2009, financial panic, liquidity problems especially in foreign currency, slowdown in EU economic area and the financial stress in the EU banking system affected both the real and the financial sectors of Albanian economy. Credit slowed down considerably, exchange rate started to depreciate, and forecasts for economic growth and inflation were down. In the mean time deposit withdrawals continued and liquidity concerns become more prominent. Bank of Albania provided ample liquidity in domestic currency in the interbank market while tightening its supervision on banks and increasing the collaboration with their home supervisors. A specific feature that needs to be mentioned is the timely increase of the deposit insurance scheme. This move marked a turning point in the confidence crisis of the public to the banking system and the liquidity problems of the system. From a narrow perspective centered on its main objective of price stability, the focus of monetary policy would be an expansionary action.
In our region, these institutions are typically banks. In my view, these banks should become subject of a more stringent regulatory framework, in terms of capital and liquidity requirements, business and risk profile, including contingency plans. The supervisory authority should always be prepared for the worse and make sure that crisis management procedures are complete and tested. In this process, valid recommendations of international organizations will be closely followed for adequate implementation over time. It is important to have close coordination with other public authorities in the country, including government. 3. Anchors of macro-prudential policies  The role of anchors in monetary policy is well known. I mentioned before that an important lesson from the crisis for authorities would be to rigorously pursue countercyclical policies. I would like to stop a bit here and focus on this issue. I believe that Albania was prepared for the crisis because IMF programs have played an important role as a credible foreign anchor for economic policies. The IMF programs and similar EU membership process have played a similar role in all CEE and SEE countries. However as the countries have matured out of these programs or joined the EU, the political incentives to continue fiscal consolidation have been fading away. Current events show that the symptoms have spread to other older members of EU, where such policies become the reason behind instability. Therefore the role of anchors is very important for preserving and safeguarding financial stability. Sound, clear and enforceable fiscal rule would be an important step.