Ardian Fullani: Overview of Albania’s recent economic and financial market developments Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the technical meeting to promote regional cooperation in the framework of Vienna Initiative II, Tirana, 3 October 2013. *  *  *  Dear representatives of supervisory authorities, I take this opportunity to thank you for your participation in the first regional meeting on the Vienna Initiative. The performance of EU and regional economies over the last few years have clearly demonstrated that in Europe’s highly interconnected markets, the financial tensions, regardless of their origin, go beyond local or regional boundaries. The euro area sovereign crisis, which started as a localized episode in the euro area periphery, evolved gradually into a European predicament involving almost all European Union (EU) members, heavily affecting non-EU member countries in the CESEE region as well. At the core of the transmission mechanism of financial pressures from EU to non-EU countries are large euro area banking groups, which operate throughout the continent with their branches and subsidiaries. In a matter of months, the sovereign-bank vicious cycle encompassing the euro area was exported to non-EU host countries, first through lower risk tolerance and second through interruption of lending to our economies by euro area banks that operate in our region through their branches and subsidiaries. In some countries, lending dampened in the form of the so-called deleveraging, i.e. reduction of lending by EU bank subsidiaries to non-EU host countries, through the simultaneous reduction of their foreign liabilities.

Our experience with regard to the effects arising from EU banking groups’ activity in response to EBA’s requirements has provided a useful lesson for the future. In meetings on the Vienna Initiative II, we have many a times iterated that macroprudential policies undertaken in the euro area must take into account the relevant impact on non-EU host countries where systemically important EU bank subsidiaries operate. The home-host cooperation framework must help achieve better policy harmonization in the future, or, at least, provide for an early exchange of information in order to allow host countries to prepare in response to potential shocks. Furthermore, the functioning of supervisory colleges should provide for an effective exchange of supervisory information, and barriers to successful participation by non-EU host countries must be eliminated through combined efforts. Your institutions’ position on each of these issues is extremely valuable to provide a comprehensive view of the implications of EU authorities’ policies and banking groups’ activity in our region, as well as to assess the implications of the banking reforms currently underway in the EU. More specifically, I think that it would be useful for us to discuss along the following lines: •  What mechanisms may we use to revive credit growth in our economies, and what contribution do you expect by EU authorities and EU banking groups in this regard? •  How can we practically establish a permanent mechanism for coordination with the ECB, in the framework of the Banking Union?