The value-at-risk approach is an attempt in that direction. It recognises that there is a crucial role for judgement in supervision, and that one size really will not fit all. It does not prescribe the key qualitative factors in legalistic detail. But it does set out the parameters so as to ensure that there is a framework in place which will deliver broad consistency and also some degree of prudence. Some have argued that regulators should go further than the value-at-risk approach: rather than defining the key parameters and endorsing particular model types, why not leave it to the banks, and give them an incentive to improve their internal models as much as possible? Under this pre-commitment approach a bank would specify the maximum portfolio loss on its trading activities and this would become the institution’s market risk capital requirement. Banks exceeding their pre-committed maximum loss (that is breaching their capital commitment) would be penalised in one way or another. Such penalties could be financial, or could entail corrective supervisory action. In some ways pre-commitment can be seen as an extension of the model-approval approach we already adopt. The aim, which we endorse, is to ensure that supervisors work with the grain of the business, and monitor ratios which are seen as meaningful by those who run banks themselves. To that extent, we support it. But there are potential drawbacks.
Clearly, this trend reflects, at the same time, the lack of managerial knowledge and capacities in the Albanian economy, and the banks’ behaviour in terms of crediting. This has produced two negative consequences: it has failed to promote the growth of productivity and the improvement of the long-term growth pace of the domestic economy; and, it has restrained the diversification of the production base in the economy, limiting its resilience to various shocks. Second, a part of the credit portfolio, not quite insignificant, has been granted to borrowers who have been exposed to and unhedged against exchange rate volatility. These borrowers have often had limited and deficient knowledge on the exchange rate risk and have suffered the consequences. 3/5  BIS central bankers' speeches  Beyond macroeconomic aspects, the structural deficiencies of crediting are, in part, responsible for the rapid growth of non-performing loans in the post-financial crisis period. In this context, the Bank of Albania deems that the banking sector should: Expand the range of credit products, especially with regard to funding projects, so as to ensure a better coverage of the sectors of the Albanian economy and of the needs of borrowing households; Increase its attention to sectors that offer a high potential for returns, given the low usage of financial leverage, such as agriculture and innovative business start-ups in information technology; Supplement the range of financial products with derivative instruments for hedging against the exchange rate, especially for borrowers exposed to it. 3.