We remain ready to respond within a short time to any consolidating initiative of the public sector. Our easing measures will remain within the legal framework of Bank of Albania’s instruments and in line with the consolidated philosophy of central banks action. The monetary policy may prove successful only if its transmission mechanism is functional. In this context, the banking system plays a key role, as the first actor of the transmission mechanism. b) A prudent supervisory and regulatory policy. This policy maintains sound balance sheets of the financial system and the private sector. Thanks to the timely measures to manage credit, capital and liquidity risks, the Albanian economy has successfully withstood the shock from global financial markets and has now a consolidated financial stability and a banking system that is able to credit and support the Albanian economy. Maintaining banking sector stability is one of the two main priorities of the Bank of Albania. I take this opportunity to draw the attention of the banking industry executives, to engage  BIS central bankers’ speeches  3  maximally to act in full compliance with the legal and regulatory framework and respect the standards for sound management of banking activities. Our objective remains unchanged; maintaining and strengthening public confidence in the banking sector. To this end, the banking system should:   Verify constantly the compliance and strengthen the internal audit systems.   Empower capacities for risk assessment and management.   Maintain adequate capital and liquidity levels.

Third, to increase our prudence towards the financial system stability, we adopted new techniques for a more comprehensive systemic risk assessment, enriched stress test exercises with the “bottom up” approach and improved models for the indirect credit risk assessment. The twinning project concentrated most of its resources on supervision and financial stability. In addition to constant motivation for improving the regulatory framework, supervision activities and risk administration, this priority becomes even more necessary given added challenges related to specific developments over the past years. The Bank of Albania has undertaken a number of actions to face and overcome these challenges. For the fourth consecutive year, the Albanian economy has been under the influence of the global economic and financial crisis. Its latest stage, the sovereign debt crisis and its interrelation with the balance sheets of the financial system have placed us on the frontline. Our two main trading and financial partner countries, Greece and Italy, have been severely hit by the crisis. Against this unfavourable landscape, the Albanian economy has grown and has maintained its financial soundness. Private agents have an overall sound financial position, relatively low debt levels and positive savings rates. In contrast to other countries in the region, the Albanian financial system has continued to lend to the economy, although at slower pace and somewhat tighter terms. Building on an appropriate and flexible regulatory framework, this response has been determinant to encourage the restructuring of the economy and guide it towards profitable sectors.