12 It is important that banks’ balance sheets are easy to understand. It is also important that banks improve their depositto-loan ratios and increase their access to long-term market funding with a view to reducing their vulnerability to sentiment shifts in money markets. We cannot have a situation in the future where our banks panic after only a few weeks of unrest in international financial markets. Banking regulation should also be adjusted in order to dampen the impact of credit cycles on the economy. In an upturn, banks’ loan losses are low and profits rise. The supply of capital  11  Charles Bean (2009) refers to the spread of liquidity problems as a result of solvency problems in individual banks as a “lemons” problem in money markets. The expression comes from an article by George Akerlof (1970): “The market for ‘lemons’: Quality uncertainty and the market mechanism”, Quarterly Journal of Economics 84:488-500. The article shows how a market can collapse when the buyer of a product (a secondhand car, which can prove to be a defective car or “lemon”) cannot verify the quality of the product beforehand. The analogy to the money market is when a lender in the money market does not always know the financial strength of the borrowing bank. The money market may then function poorly. See Charles Bean (2009): “The Great Moderation, the Great Panic and the Great Contraction”, Schumpeter Lecture, Annual Congress of the European Economic Association. 12  See Jean Tirole (2009): “Illiquidity and All Its Friends”.
The regional tradition is poor, of little inheritance in institutions, market rule and behaviour, and financial intermediation. However, today, about 15 years after the big collapse of the communist regime it seems that South East European Countries (SEEC) have been engaged in an irreversible process of their stabilization and integration with the rest of Europe. 2  BIS Review 44/2005