, to improve the bank's governance and risk management. iv. boards, through the nomination and remuneration committees, must ensure that management remuneration is not only tied to short - term profits but takes into account long - term materialisation of risks and that appropriate ex - ante and expost checks for assessment are built into the compensation systems. v. boards must ensure a suitable policy framework for its own assessment for effectiveness, in accordance with their strategies and risk profiles. the effectiveness must be tracked at all levels - individual director, committee, and overall board. a well - qualified, engaged, and vigilant board can prevent management failures. importance of assurance functions the importance of assurance functions has already been stressed by both governor and dg shri jain. the reserve bank has also issued guidelines on supervisory expectations and for providing sufficient authority, resources and independence to these functions, among others. the board is expected to take an active role in 3 / 5 bis - central bankers'speeches identifying / approving the head of control and assurance functions. clear lines of communication between the board / board committees and heads of control and assurance functions are also mandated to ensure that information exchange happens regularly, and areas of concern and probable remediation can be identified well within time. recognising its criticality, supervision has also focused on business models and governance during the supervisory reviews. dg also referred supervision as the fifth line of defence. the classic three lines of defence are clearly under the remit of the board with audit being an independent check and supervision being the final line of defence / oversight. here the governance framework set out by the board should ensure that the three lines of defence do the job as expected – much like in the game of football, where the forwards, the midfielder and the defenders should collectively keep the ball in play and ensure that the supervisor as a goalkeeper is not engaged. coming to the link between regulation and governance, let me say that the regulators usually decide the regulatory perimeter and guide the regulated entities so that there are no accidents and surprises. while it is for the regulators to issue instructions that enjoin upon banks to adopt the best practices insofar as governance is concerned, it is for the board to set the strategic direction, engage with management, and conduct review of key policies and frameworks. the boards should manage alignment of performance with pay as well as enforce accountability to ensure adherence to the best practices while achieving the objectives set for the bank by the board.

ardian fullani : recent economic and financial developments in albania speech by mr ardian fullani, governor of the bank of albania, at the monetary policy statement for the second half of 2008, tirana, 29 february 2009. * * * world economy and the financial system in particular were severely hit in the second half of 2008. the crisis which struck the heart of the global financial system was progressively and relentlessly transmitted to the economic activity of advanced economies leading some of the latter into recession. the albanian economy has been resilient amid this hitting wave. according to the available official data and judging upon a number of indirect indicators, the bank of albania notes that the economic activity throughout the year has by and large performed in line with the early 2008 projections both in terms of economic growth and preservation of macroeconomic balances. the bank of albania in particular has met its primary objective mandated by law, contributing to the maintenance of price stability. average annual inflation rate marked 3. 4 percent, which is close to the central bank ’ s objective. the recent global - scale developments attest to the further economic downturn. despite the slackening of inflationary pressures as a result of the reduced demand and the slump in basic commodity prices, the tightening of lending standards and the fall in consumption and investment have led to uncertainties related to the duration and intensity of this troublesome situation. against this backdrop, the facing of the economic activity contraction at a global level remains an open issue. the euro area economy is already experiencing an economic slowdown. euro area gdp contracted in the third quarter while the unemployment rate reached 7. 8 percent in november 2008. the u. s. economy showed quite similar features. the further contraction of economic activity – owing to the deterioration of financial indicators in the u. s. corporate and household balance sheets, mirrored in lower consumption spending and reduced aggregate investment – drove the unemployment rate to reach 7. 2 percent. monetary and financial stimuli managed by central banks and the ministries of finance have helped to bolster confidence and relieve pressure on the financial institutions. against this backdrop, the “ resilience ” shown by emerging countries is displaying the first signs of weakening. in contrast to the first half of 2008, the latest data attest to the moderation of economic growth rates in the majority of these countries. the channels through which the slowdown in advanced economies has affected the emerging countries differ depending on their development characteristics. china and india have been severely hit by the slowdown in exports ;