On March 11, 2008, the Fed announced the establishment of the Term Securities Lending Facility (TSLF). This program allowed primary dealers to swap a broad range of what had become illiquid assets for Treasury securities that could be easily financed. This program leveraged the Fed’s large holdings of Treasury securities. The TSLF, however, came too late  BIS Review 92/2010  7  for Bear Sterns. On March 14, the Fed again using its section 13(3) emergency powers approved the takeover of Bear Sterns, the fifth largest investment bank, by JPMorgan Chase. Without the acquisition by JPMorgan Chase, Bear Sterns would have had to file for bankruptcy since they were essentially cut off from market funding. Two days later, on March 16, the Primary Dealer Credit Facility (PDCF) was introduced, essentially providing discount window access to all primary dealers in an effort to provide a backstop to their liquidity needs. Like discount window lending, PDCF loans had to be “secured to the satisfaction” of the Fed. Chart 8 shows borrowing from the PDCF in comparison to borrowing from the discount window. With the TSLF and PDCF, the Fed was now better able to direct water directly to where the fires were burning the hottest. At the same time that the Fed was using its traditional liquidity and new liquidity tools, it was also aggressively cutting the federal funds rate, which is its primary instrument for stimulating the real economy. In the summer of 2007, the fed funds rate was at 5.25 percent.

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.