Gent Sejko: Albania's economic and financial developments in 2019 Speech by Mr Gent Sejko, Governor of the Bank of Albania, during the presentation of the Annual Report of the Bank of Albania for 2019 in the Albanian Parliament, Tirana, 2 July 2020. * * *  Honorable Mr. Speaker of the Assembly, Distinguished Ladies and Gentlemen, Let me thank you for the invitation and the opportunity you have given me to present to you the Annual Report of the Bank of Albania for 2019. In general, I find that the work of the Bank of Albania has had a positive contribution to strengthening the monetary and financial stability of the country. This stability is a necessary precondition for the sustainable and long-term development of the country. Also, the Bank of Albania has fulfilled its other legal duties, has made progress in the implementation of the Medium Term Development Strategy, and has implemented the recommendations left by the Albanian Parliament. *** In accordance with the legal framework in force, the main objective of the work of the Bank of Albania is to achieve and maintain price stability. 1. Albanian economy and monetary policy during 2019 2019 was a challenging year for the Albanian economy. Economic activity continued to benefit from rising private consumption and the rapid expansion of tourism. However, the foreign environment proved to be unfavorable, while the decline in electricity production, the gradual termination of investments in major energy projects, and the November earthquake had strong negative effects.

Some disconnection between the valuation process – which should remain anchored on market prices – and income and profit recognition will have to be introduced, if only to account for risks which are there but have not yet materialized. Dynamic provisioning is one technique for doing so, when risks are closely related to the economic cycle. Valuation reserves may also be used when complexity or illiquidity creates additional risk linked to valuation. Provided those adjustments are rule based and made in a fully transparent process, they would not reduce the quantity or quality of information available to investors as to the real health of financial institutions. Another avenue for research would be for the regulatory system to "force" the pricing of risk in all its dimensions. There is a clear analogy with tax theory: internalizing the risk eliminates market failures. This approach would be best implemented to liquidity risk linked to maturity transformation. Quantitative liquidity ratios are currently considered in a number of juridictions to be imposed on financial institutions. However, they may not protect the system against an aggregate liquidity shock, when, by definition, the demand for liquidity becomes infinite and any buffer proves insufficient. Pricing liquidity ex ante in the system would reduce the probability of such a shock and create incentives against relying too much on maturity transformation. Admittedly, the conceptual challenges in quantifying, for instance, liquidity risk, are enormous. But we live in a world of second best, and even very approximate measures would do better than nothing at all. Thank you.