Alignment with international standards supports competitiveness because it makes it easier for international firms to conduct business in the UK. It avoids inefficiencies that would arise from international firms having to comply with a different set of rules when they operate here. It also helps protect the UK’s financial system from the risks that originate outside of this country. Such risks will inevitably arise when a country’s financial system is large and open. To use my earlier analogy as our immune system needs to protect us from infection from elsewhere, and to stop us transmitting infections to others, we need global prudential defences to keep us all healthy. Dare I also say that financial services centres are more competitive when their regulators have a good reputation amongst their peers – for independence, strength, and effectiveness built on technical competence and understanding of financial markets. Some of my audience may be surprised that there is a concept such as regulatory innovation! But there is such a thing and UK regulators have a good reputation for it, recognised for example by the IMF in its recent Financial Sector Assessment of the UK. [14] Protecting and enhancing regulators’ reputation benefits global firms operating in the UK and UK firms operating overseas, not least through UK influence in global standard-setting bodies. For one thing, it makes it more likely that other regulators will allow firms in their jurisdictions to operate in the UK in a way that maintains deep interconnections with its financial system.

The economic activity slowdown and uncertainty about the future, in the face of still tightening lending terms by banks, have guided the economic agents’ decisions to postpone the investment plans and to less finance consumption from borrowing. However, monetary developments confirm an improved situation of deposits during the second half of 2009. The change in depositors’ behaviour, in the context of measures taken to prevent the spread of global crisis effects, and the foreign currency inflows in the form of remittances during summer, have contributed to stabilizing the liquidity situation of the banking system. Financial markets were characterized by a more relaxed situation during the second half of the year. The banking system continued to be featured by liquidity constraints, which were remedied by central bank liquidity injections. Improved liquidity situation due to increased deposits in the system and fostered certainty in the market created a suitable environment for transmitting the monetary policy signal to the interbank market. The key interest rate cut at the end of October is followed by reduced yields on government securities, after the upward trend characterizing them throughout the year. In the meantime, the Bank of Albania, in accordance with time lags that characterize the monetary policy transmission mechanism, expects and requires that the key interest rate cut be transmitted to credit markets. *** The Supervisory Council’s Decision on keeping the key interest rate unchanged aims to further maintain and consolidate the macroeconomic balances, considering them as a necessary prerequisite for a sustainable and long-term growth.