Since the financial crisis, the Federal Reserve has made significant changes to the substance and process of supervision. As a result, the financial system is unquestionably much stronger and much more stable now than it was five years ago. II. Substantive changes  Since the financial crisis, the Federal Reserve has redoubled its attention to bank capital. Capital is the financial cushion that banks hold to absorb loss.1 It provides an economic firebreak that helps prevent systemic stress from turning into a full-blown crisis. Before the crisis, capital requirements were too low and inconsistent across jurisdictions. Moreover, too much of the capital held by banks was of poor quality, and their internal capital assessments were not forward-looking.2 Since the crisis, new regulation and heightened supervision have increased both the quantity and the quality of equity capital at the largest financial institutions that we regulate and supervise. The Federal Reserve and other federal banking regulators implemented so-called “Basel III” international capital standards in July 2013, which raised the minimum ratio of common equity Tier 1 capital to risk-weighted assets. Federal regulation also now requires stricter criteria for instruments to qualify as  1  I use the terms “bank” and “financial institution” interchangeably, but note that the two terms are not synonymous in federal regulation. 2  See Joint Notice of Proposed Rulemaking, “Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action,” June 12, 2012, at 32.

I take this opportunity to point out that the Bank of Albania’s efforts to keep inflation in check and anchor inflationary expectations, as well as its regulatory and supervisory measures to guarantee financial system stability managed to reduce shock-buffering costs and prevented undesirable consequences. Second, as regards the economy’s expected performance in the medium and long run, the conclusion reached after the two-week long consultations was that the Albanian economy is expected to remain in positive territory of economic growth. However, growth rates will clearly depend on the resurgence of the domestic demand, which is suffering from insecurity related to national and international developments. Consumption and investments continue to suffer from added prudence by economic agents, while financial conditions and banking system capacity to credit the economy are improved. Furthermore, higher inflation rates, noted during the first months of 2011, are expected to drop in the upcoming period. This reveals the foreign origin of shocks that have led to increased prices and reflects internal economic and financial conditions as well as our monetary policy. The joint examination of the Albanian economy found that the fiscal and external sectors are the two main ones that would require our attention and our work in the future. The Bank of Albania has long held that public finances’ long-term stability is a precondition for sustainable economic growth. The daily world press illustrates channels through which indicators such as budget deficit and public debt affect financial markets and in turn the real economy.