Lessons learned That brings me to my second broad topic, which is the lessons we have learned over the years as we have developed Basel II. I am not looking back simply for the sake of nostalgia. Rather, in looking to the past, I would like to share some thoughts on how the things we have learned and reflected in the process of developing Basel II will help to make Basel II successful in the future, to stand the test of time and to have the impact that we intended. Focus on risk management First, Basel II is fundamentally about establishing incentive-based approaches to risk and capital within the three-pillar framework. We should never lose sight of the fact that Basel II is built around both qualitative and quantitative risk management elements. Why is this so important? As a bank supervisor and central banker, what most concerns me is financial stability. When I review the various reports on this subject that cross my desk, one thing they almost always have in common is an emphasis on the link between sound risk management and financial stability. It is my hope—indeed, it is my belief—that the incentives for risk management in Basel II will therefore promote greater financial stability in the future. Improved and more formalised risk management, as fostered by Basel II, will bring more awareness of risks and better quantification of these risks. To the extent that risk assessment and control methods become more formalised and rigorous, this will lessen the likelihood of making bad decisions.

The implementation of quick and concrete measures, which guarantee the long-term stability of public debt, seems that shall condition considerably the future development. World financial markets have reacted tensely against these developments, being characterised by a high volatility and an increase of risk primes throughout the instruments variety, markets and financial agents. Turning to the domestic economy, the latest qualitative and quantitative indicators show a slow performance of economy in the early months of 2010. The deceleration of domestic demand is compensated by a positive and growing performance of the Albanian exports. The domestic inflationary pressures were low and the consumer price inflation declining. Monetary markets revealed more calm, characterised by a dropping trend of interest rates, liquidity situation improvement of the banking system and a more stable performance of the exchange rate. However, lending to economy continues to maintain low growth paces. Indirect and prior estimates suggest that the paces of private consumption have been controlled, conditioned by restricted sources of its financing and by the higher tendency of consumers regarding savings. The low level of capacities utilisation in economy, the low paces of loan for investments and the fall of capital and intermediate goods import, signal a contraction of private investments even during the first three months of this year. The demand for monetary assets of private sector continues to be low, thus reflecting a deceleration of the economic activity. The annual pace of lending growth, excluding the exchange rate effect, for this sector slowed down onwards, at 4.8 percent in March.