A bank may thus seek to increase the expected return by taking on higher risk without having to pay for this in the form of higher borrowing costs. Market discipline is weakened when operators are sheltered from taking the full consequences of their own actions. This is referred to as moral hazard. The authorities must regularly undertake a critical review of regulations to determine whether they are formulated with a view to achieving the overriding objectives at minimum cost. 3. Work on crisis prevention since the banking crisis  The lessons drawn from earlier banking crises are the primary means of preventing new crises. The debt crisis in the 1920s was at the root of the caution that continued to be exercised many years later. Operators are still cautious as a result of the banking crisis in the 1990s. The memory of earlier experiences fades over time. It is imperative to establish framework conditions that deter borrowers and lenders from taking excessive risk. The central framework conditions include effective legislation and regulations, a robust payment and settlement system, and effective supervision of institutions and markets. The capital adequacy regulations are more stringent today than when the banking crisis erupted. Sound capital adequacy strengthens banks’ capacity to bear unanticipated losses. The size of the banks’ capital base also sets limits for lending growth. The capital adequacy requirements are being revised. This will also have implications for Norway. The new Bank Guarantee Act is another important change to regulations. The Act provides for a deposit guarantee.

Our point of view is that this process belongs equally to the Bank of Albania as the Resolution Authority and to the banks, 4/5  BIS central bankers' speeches  which must include its results into their daily business. During the first cycle of this work in 2018, we have highlighted a number of issues that require particular attention in planning, as well as in their following up by the banks: The Bank of Albania must have access to qualitative data produced by banks, in order to select the appropriate resolution strategy. The exact identification of the bank’s operational system interconnected with the critical functions is important. The proper understanding of contractual agreements and their respective treatment is imperative, and, in particular The provision of resolution funding sources constitutes a challenge. Complying with the Minimum Requirement for Own funds and Eligible Liabilities (MREL), which underpins the application of the new essential resolution instrument, the bail-in instrument, remain the key challenge for the medium-term period. Complying with MREL is a challenge for countries like Albania, due to the capacity of the domestic market to absorb (acquire and maintain) the subordinate debt that may serve to fulfil the Minimum Requirement as well as due to the capacity of the banks to restructure funding resources, which currently consist largely of deposits. Consequently, to fulfil this obligation an interim period should be designed, without prejudice, in any case, to the main objective of resolution implementation. Finally, resolution is quite a challenging process for emerging and advanced economies.