We are discussing regulation of the financial system but it doesn’t mean that we need an over regulated system – certainly not. We have to strike a balance, but it is clear in Europe, that we hope we will have a system that will be more regulated, or at least better regulated, without holes in the system. But we are living in a global world and we need to have consistent rules around the world. FT: But Europe also needs to have its own internal dynamism, to encourage innovation. That was part of the problem of the economic model before the crisis. If you create more regulation, doesn’t that make the problem worse? CN: I think it does not prevent innovation if the rules are well designed. The lesson that we should take from the crisis is that if we let something an innovation – like hedge funds, or securitisation – develop freely and continue not to regulate it or exert any surveillance even if it grows to such an important level that it is systemic, then the risk is enormous. We should be able to detect when a systemic risk is becoming too big in the system and then act. BIS Review 29/2009  5
In this regard, the debate should focus on finding the incentives to increase the domestic production and support domestic savings. Over the time these would improve our current account balance, and improve the availability of our foreign currency assets;  c)  the expansion of the economic agents’ funding sources. In this regard the authorities should implement policies that support the development of the non-banking financial sector and that sustain the establishment of capital and debt market for private entities. The accomplishment of these targets shall firstly require the strengthening of the financial reporting standards; the completion and improvement of the legal framework for the developments of business relationships and the improvements in the protection of creditors and consumer rights, regarding the financial institutions and products. In more practical terms, these measures are expected to improve the availability of the funding sources for the economic growth, and gradually decrease its dependence from the banking sector;  d)  the improvement and the completion of the legal and operational framework to strengthen the crisis management capacities of the public authorities. In this regard, the authorities should identify the necessary measures for the prevention, the treatment and the elimination of financial crisis consequences. Bank of Albania believes it is important that each public authority carry out an assessment of its legal, financial, human and technological capabilities, to perform its role in the crisisprone situations. Needless to say, throughout this process, the coordination among the public authorities should be at the highest level.