And if there is a role for fiscal policy, then that also affects the financial stability calculus31. The second, and related point, is that the financial stability dimension needs to be taken in the round. The impact of monetary policy on financial assets and leverage, for example, is a very important consideration. But we should not, on the other hand, lose sight of the fact that a world in which downturns may be more severe and more persistent because demand management is less effective would also be a significant and perhaps a greater challenge for financial stability. Conclusion Jane Austen’s Navy Fives, as I noted at the start, gave her nominal annual return of nearly 6%. But her real return, when she purchased them in 1815, was closer to 20%. Britain was entering a severe recession that year at the end of the Napoleonic wars with deflation of more than 10%. The annual return in 1817, the year of Jane’s death, was actually negative 2% as inflation rebounded. A few years later Britain reverted to its pre-war monetary standard by restoring Sterling’s convertibility to gold. Over the following 50 years, nominal interest rates came down a little but stayed in the 3-5% range. 30  Broadbent (2018). From a narrow financial stability perspective, growth of own currency sovereign debt, especially when financed internally, is not a good predictor of financial crises. See Cunliffe (2019).
2  BIS Review 39/2005  The main objective remains enforcing legal initiatives that would bring about the modification of legal and sub-legal basis. Modification of regulatory basis of Bank of Albania I have stated even previously that Bank of Albania aims at reviewing its regulatory basis with the sole intent to simplify it and to ease its implementation. For this purpose I have insisted on a continuous basis that the first contacts among mutual technical staffs to raise the banking system concerns on the regulatory framework enforcement should be established. After several discussions we come to the conclusion that the group of the following regulations should be subject of necessary modifications, and I would ensure you that work at the Bank of Albania has already started for this purpose. Methodical guideline on “foreign exchange risks” Observations: inclusion in the calculation of the open position of off-balance guarantees which include as unused credit limit, the financing commitments made and received, and registering of collateral estimated in foreign currency and received for guaranteeing the credit (all banks in the matrix). These are commitments that remain in force and for which, according to the current regulatory framework interpreting, the bank is required to create a real position (within the balance). It is proposed: to reformulate the methodical guideline, excluding the guarantees. Guideline “on bank regulatory capital” Observations: To make clearer systemization for the items being deducted from the additional capital, explaining that on which size deductions are to be calculated.