Moreover, the effect of bank market power on financing constraints increases in financial systems that are more bank dependent. 13 This underscores the general need, as I mentioned earlier, to create a more balanced financing mix between banks and capital markets. But it also points again to the particular importance of securitisation. With well-functioning securitisation markets some of the benefits of cross-border banks – for instance risk-sharing – can be replicated by having small, local banks originate-to-distribute loans while larger, global banks securitise and market them. In  9  See for example Anna Kovner, James Vickery, and Lily Zhou, “Do Big Banks Have Lower Operating Costs?,” Federal Reserve Bank of New York Economic Policy Review, Volume 20, No. 2, forthcoming. 10  “Financial Integration in Europe”, March 2007. In line with this, Carletti, E., Hartmann, P., and Ongena, S. (2007), “The economic impact of merger control: What is special about banking?”, ECB Working Paper No 786, July, find empirical evidence that the opacity of national bank merger reviews entered elements of inefficiency in banking relative to non-financial corporate sectors. 11  For a discussion on why retail bank integration may be a particularly attractive risk-sharing mechanism, see e.g. Fecht, F., Grüner, H.P. and Hartmann, P. (2007), “Welfare effects of financial integration,” CEPR Discussion Paper No. 6311. 12  See for instance Reinhardt, D. and Riddiough, S. (2014), “The two phases of cross-border banking flows”, mimeo, Bank of England.

Positive developments in the external sector of the economy, primarily owing to expansion of exports and foreign currency inflows from the Eurobond, contributed to the generation of contained pressures in the foreign exchange market. From the macroeconomic viewpoint,  2  BIS central bankers’ speeches  relative exchange rate stability during the year reflected a new equilibrium in foreign currency demand and supply. In sectorial terms, the Albanian economy development relied chiefly on growth of industry and services sectors, while construction sector continued to contract in 2010. Industry and services sectors benefited, to a great extent, respectively, from foreign demand and structural shift of the domestic demand to short-term consumption goods. In the short- and mid-term horizon, both sectors are expected to remain the main supporting pillars of the Albanian economy. Agriculture, the other important sector of the Albanian economy, marked a positive performance in 2010. Even so, based on the broader concentration of the country’s population and the great potential for development, the increase in this sector’s productivity remains a long-term priority. Money and financial markets Monetary developments in the past year were in line with the performance of the real sector of the economy, reflecting simultaneously the fully restored confidence in the financial system, improved supply and demand ratios in the financial markets and prudent liquidity management policy of the Bank of Albania. Expansion of monetary stock by 10.6% on average complied with the economy’s demand for money and did not trigger any inflationary tendencies in the economy.