However, considerations of the external balances of our economy, its financial stability and the need to anchor expectations, constrained our decisions. I will elaborate briefly on these factors. Faced with contained upward pressures in inflation, the central bank focused its attention on determinant factors of financial stability. By refraining from pursuing an expansionary monetary policy, the central bank did not exacerbate the pressures on the exchange rate which would than put additional strain on un-hedged borrowers and the bank’s balance sheets. Furthermore, interest rate cuts had the potential to affect deposit withdrawals and cause liquidity problems and further depreciation. At the time these two were the main concerns to financial stability. The Albanian economy did however receive some macroeconomic stimulus in the form of fiscal expansion. This countercyclical policy was made possible because of the previous work done to consolidate the fiscal position and to anchor macroeconomic policies and public expectations. Albania approached the crisis with sustainable fiscal position in terms of deficit and public debt, creating room for maneuver and fiscal expansion to support economy before  BIS Review 173/2010  3  monetary policy could intervene. Therefore the first lesson from the crisis for authorities would be to follow countercyclical policies, which will permit for bolder action in time of crisis. What are the lessons for the future? I think I already mentioned the first one. The second lesson, which relates to the price and financial stability, is equally important. Price and financial stability do not conflict each other in the long run.

A mechanism such as the Vienna initiative that would encourage the commitment of parent banks to their EE subsidiaries and would discourage their financial disintermediation in these countries can be made permanent with added benefits to all the stakeholders. Furthermore, regulatory harmonization can be improved and regulatory arbitrage can be mitigated. On macro-prudential policies I argued on the need to develop specific anchors that would make more credible, transparent and therefore achievable the goal of financial stability. Measuring financial stability, or instability, might be difficult but that should not discourage us from trying. Thank you for your attention. Box 1 Measures taken in the banking supervision area during the pre-crisis period.   On June 2007, the new Law on Banks in the Republic of Albania entered into force. This Law stipulates rigorous principles and rules on the risk management, aiming at protecting the depositors, investors and fostering the banking system’s stability.   On January 2008, the Credit Registry started the operation representing a vital infrastructurerelated development.   On March 2008, the Bank of Albania adopted a package of regulatory amendments which were generally oriented to adopting more conservatory policies in several main directions of day-to-day commercial banking running. In more concrete terms, this therapy can be described:  In compliance with the new Law On Banks in the Republic of Albania, new quantitative thresholds were set for the calculation, supervision and reporting of banks’ large exposures to parent banks and related entities.