After all, misaligned incentives contributed greatly to the financial crisis and continue to affect bank conduct and behavior.2 Today, I will address this issue of incentives, with emphasis on the complementary roles of regulation, supervision, and bank culture. Each of these is necessary to ensure that we have a robust and resilient financial system not just today, but also in the future. Progress since the financial crisis The financial crisis was a watershed event that exposed severe deficiencies in the financial system—including the inadequacy of bank capital and liquidity buffers, poor risk management and internal controls, and bad bank cultures. Many financial firms took on an excessive amount of risk and did not always act in ways consistent with the interests of their customers or the broader public. The crisis revealed woeful shortcomings in many of these elements, with terrible consequences for the economy and millions of people. Over the past decade, the official sector and the financial industry have made considerable progress in addressing these problems. The banking system is much sounder and more resilient as a result, in a number of ways. First, systemically important banks are much safer.3 They have much bigger liquidity and capital buffers, and the quality of capital is much improved. Moreover, the capital regime now has a forward-looking element in which annual stress tests examine banks’ ability to withstand losses under severely adverse economic conditions and constrain the amount of capital that can be returned to shareholders via dividends and share repurchases.
At the same time, the Albania's budget deficit declined to 3.7% of GDP in 2022 from 4.6% of GDP in 2021, while public debt reduced to 64.6% of GDP from 74.5%. This improvement reflected the fast growth of public revenues, the reduction of the budget deficit in response to the fiscal consolidation policy, as well as the strengthening of the exchange rate. Last, but not least, financial markets have been relatively calm and the banking sector has performed positively, despite the elevated trend of interest rates and the higher uncertainty that has characterized the market actors. In particular, the banking sector appears robust, with good indicators of liquidity, profitability and capitalization. This sector has already turned into a stable business partner for Albanian households, supplying them with the necessary funds for the expansion of activity, providing reliable instruments for maintaining their savings, as well as by constantly expanding the range of financial products and payment instruments. Our analyses suggest that systemic risks remain contained, while the high level of capitalization and liquidity provides a significant buffer to withstand shocks. Dear ladies and gentlemen, The good resilience of the Albanian economy in the face of the ongoing crises of recent years is an evidence, first of all, of the dynamism, flexibility and sound balance sheets of Albanian businesses and households.