Fire sales would weigh on profits, further deteriorating banks’ capital positions, generating in the process negative externalities and sub-optimal collective behaviour. Therefore, to be successful, significant reductions on the assets side of the banks’ balance sheet require a stabilisation of the economic and financial environment. Raising capital is also challenging in an unstable environment. Uncertainty about the pricing of the risky assets and the overall risk surrounding the valuation of banks makes it particularly difficult to attract new equity investors. Raising capital in such circumstances may not be accepted by shareholders as it may send a negative signal to the markets and lead to a drop in share prices. And, compared to 2008–2009, credible government support for banks’ capital positions was less available. This left banks with the third option, namely, to reduce lending. Banks could easily stop rolling over their loans or granting new ones. This strategy, however, while optimal from an individual bank’s perspective, would lead, if pursued collectively, to a credit crunch, with significant negative consequences on the real economy and additional strains on the banking sector. A credit crunch would have been particularly dangerous for small and medium-sized enterprises (SMEs), given their heavy reliance on bank funding. It is no exaggeration to say that SMEs form the backbone of Europe’s economy, accounting for approximately two-thirds of employment. Let me give you a few statistics: SMEs constitute about 99% of all firms in the euro area, employ 72% of the euro area’s labour force and generate around 60% of value added.

Minutes are released regularly and Bank of Albania website provides fresh info on daily activity. 2  BIS Review 85/2006  •  There is significant progress on establishing the Credit Information Bureau. We hope by the end of next year that will be fully operational. •  Last but not the least I would stress out that we have already presented a detailed action plan for the remaining part of the FSAP recommendations. Honorable participants, Designing and implementing monetary policy has become more challenging. Globalization in particular has exposed our economy to foreign shocks. In addition policy actions of ECB and FED, exert their impact on Albanian economy mainly due to high extend of currency substitution. Rapid growth of lending activity is the most notable development among domestic factors. According to our figures over the last two years credit to economy has expanded by an equivalent of 10-12 GDP percentage points. At this rate it is expected to reach 18-20 percent of GDP at the end of current year. Is worth mentioning that approximately 30 percent of the outstanding credit represents consumer credit, moreover 75 percent of the outstanding stock is loaned in foreign exchange currency. This represents a very important development and deserves scrupulous attention. Our main concerns relate to inflationary pressures and non-performing loans that such credit expansion might generate. In the light of these developments Bank of Albania assessed that existing stance of monetary policy was not providing enough stimulus to curb aggregate demand.