The banking industry itself is required to carry out a process of re-assessment of its development objectives and models for the future, so as to ensure consistent and stable profits. In this regard, the managing structures of the banks are expected to undertake a  BIS Review 139/2009  5  process with the purpose of: a) re-assessing the development priorities; b) establishing a better balance regarding income sources and focus on cost control; c) enabling a higher specialization of their business and identify competitive priorities; d) achieving a better balance regarding the composition of their assets and liabilities according to the currency, maturity structure, etc. ; e) implementing more active policies to approach and maintain the public (customers) close to the institution; f) strengthening the internal audit structure and risks management and research capacities. Bank of Albania is now working with the goal that, within the needed time frame and after properly consulting with the financial industry, to support this process through the introduction of changes in the regulatory and supervisory framework. With this in mind, we shall aim at strengthening the internal mechanisms of the banking activity that incentivize its more controlled and balanced expansion, with adequate characteristics of liquidity and capitalization. At the same time, Bank of Albania shall assess the need for a new supervisory approach for the banks with systematic importance. The transparency of banking activity in its relationships with customers and public in general, shall remain at the centre of our supervisory activity.

By doing so, they missed the negative effects and excesses that arise from the herd behavior of the financial institutions, many times a consequence of the pro-cyclicality that is inherent in the financial activity and the regulatory framework itself. The attention of the supervision was focused on the banking sector, but insufficient attention was given to its interaction with the non-banking financial sector, that by being much less regulated, in the meantime was increasing in size and importance. Also, as part of their general and commending goal to focus their supervisory approach on the most important risk sources of the financial industry, but also as a sign of their objective difficulty to keep the pace with the financial markets developments and innovations, the supervisory authorities relied more and more on the market discipline and on the sophisticated and unclear risk models of the financial industry, that also proved to be deficient. Some times, the structure of the supervisory authorities has proven to be fragmented or too complicated, giving rise to regulatory arbitrage by the market players. Other times, the resources needed to effectively perform the supervisory role have been limited, negatively affecting the supervisor’s performance. But this crisis showed that risk came also from other sources, out of the direct control of the supervisory authorities in a given jurisdiction. For example, the increasing asset prices were fueled by ample liquidity and credit conditions, which were often affected by international developments and financial flows.