Further, the central bank needs to take care that its provision of money-like assets in normal times does not crowd out the private financial system or exacerbate run behavior in stressful times.9  Private provision of money-like assets The private sector plays an important role in the provision of money-like assets. For instance, banks create money-like assets in the form of bank deposits.Similarly, nonbank institutions, such as money market funds (MMFs), can also provide money-like assets. However, private provision of money-like assets can increase the risk of financial instability. In order to provide money-like assets, financial institutions generally engage in maturity and liquidity transformation, transforming longer term assets into callable liabilities that are runnable.10 Thus, although in normal times investors may perceive these privately produced assets as safe and liquid, a sudden shift in investor perceptions can amplify instability in periods of market stress. To the extent that the private sector does not incorporate the social cost of runs on private callable liabilities, too much private money can be created in normal times, generating a role for public sector intervention. The main way the public sector can mitigate the risks associated with the excessive private supply of money-like assets is through regulation and supervision. By reducing the fragility of 2 / 10  BIS central bankers' speeches  financial institutions, regulation reduces the run externalities associated with private money creation. Effective capital regulation and supervision are the main tools for reducing investor concerns about the banking system’s solvency in stressful times.

A sustainable financial system, oriented to new long-term horizons and prudential to risks, serves to channel savings into the most competitive sectors of the economy. *  *  *  In the following, I would like to address the above-listed topics in more details, focusing on key points of the Bank of Albania’s work. 1. Economic and financial developments in 2010  According to INSTAT data, the Albanian economy is estimated to have grown by 3.9 % this year. Compared to 2009, economic growth is more balanced in terms of sectorial distribution and demand components. During 2010, the Albanian economy was characterised by gradual improvement of the aggregate demand and further consolidation of the macroeconomic stability. Economic development was followed by price stability, while the public debt and current account deficit narrowed. Economic growth relied mainly on foreign demand and increased Albanian exports, while domestic demand was sluggish. The latter decelerated due to public finances consolidation and budget deficit reduction in 2010, while consumer spending and private investments were affected by insecurity about the future and presence of spare capacities. Fiscal policy was oriented towards fiscal consolidation in 2010, following the stimulating nature in 2009. Fiscal consolidation accelerated especially in 2010 H2, following the approval of the revised budget. This consolidation was present on both, income and expenditure sides. Budget revenues increased by 8.4% y-o-y, reflecting the economic growth, expansion of taxpayers’ base, and privatisation receipts. On the other hand, budget expenditures decreased by 4.5%, attributable to reduction of government capital expenditures.