is a condition, in which an economy ’ s mechanisms for pricing, allocating, and managing financial risks are functioning well enough to contribute to the performance of the economy ” 1. this definition implies that the financial system is capable of accomplishing appropriately its three main roles. firstly, the financial system is capable to achieve effective distribution of economic resources over time. secondly, it identifies and manages appropriately financial risks. thirdly, it can softly absorb shocks and surprises that occur in the financial system and the real economy. i think that the goal of this conference is to analyze financial markets concentrating on these three aspects, and to steer our efforts towards evaluating and guaranteeing the achievement of financial stability in our region. our economies are quickly developing, and they are experiencing rapid changes, and we, as representatives of central banking in our countries, must adapt to these changes and promote growth without losing sight of prudential supervision. latest trends towards expansion, liberalization and privatization of the financial system in the context of a fast - paced globalization of the world economy have put the goal of financial stability on top of the priorities in our region. during the last few years, the financial sector has recorded positive growth rates in all countries in our region. however, i think that the merit for such a growth goes to the most vital segment of the financial safeguarding financial stability, theory and practice ( 2005 ), international monetary fund, page 83, last paragraph. system, that is, the banking system. the key factor to the successful growth and consolidation of the banking system has been the rapid privatization of banks, which is, at present, almost complete. this process has opened the way to the arrival of well - known international banks that have brought foreign capital, expertise and confidence in the region. the entry of those banks, besides the positive aspect of fostering growth and development, calls for higher prudence in the supervisory role of the central banks. as a result of the above developments, the degree of financial intermediation in our region has further increased. credit to economy has played a considerable role towards the deepening of financial intermediation. albania has recently joined the group of countries experiencing a credit boom, as annual growth rates have been in the range of 60 - 70 per cent in the last two years. an interesting indicator of banking system transformation is the ebrd indicator regarding “ banking system reform and liberalization of interest rates ”, which combines the quality of supervisory and regulatory base, the ownership structure of banking

ardian fullani : regional financial markets and financial stability speech by mr ardian fullani, governor of the bank of albania, at the bank of albania ’ s 6th international conference, “ regional financial markets and financial stability – a concept between national sovereignty and globalisation ”, tirana, 30 october 2006. * * * honorable mr. prime minister, honorable colleagues, honorable participants! it ’ s a great pleasure and a privilege to open the proceedings of the sixth annual conference of the bank of albania and to welcome you in tirana. this conference will focus on financial stability. the analysis and understanding of imbalances in the financial markets and of their causes is essential in central banking. the extent of social benefits and advantages that money, as a public good, creates for the society is dependent on the efficiency and capacity of financial markets to facilitate trade, production, capital accumulation, economic growth and social welfare. therefore, financial stability may be regarded as a “ public good ” and hence represents a public economic policy objective. the question is who is in charge of providing this good? personally, my attention has been drawn by paul volker who describes the natural role of central banks in ensuring the financial stability. the central bank ’ s traditional role, as lender of last resort on one hand, and as monetary policy authority on the other, requires that central banks ensure financial stability in both standpoints as a provider and a beneficiary. our role of monitoring the contagion process and financial and monetary crises, illustrates this idea very well. at the same time, the monetary transmission mechanism is another factor that witnesses the vested interest of the central bank in preserving the soundness of the financial system. the developments observed in the last decades, and particularly in the ’ 90, brought the importance of financial stability to the fore and highlighted its key position among the most important economic policy objectives assigned to monetary authorities across the world. in spite of the emphasis and the vast literature on the issue, it is difficult to give a widely accepted definition of “ financial stability ”. definitions of well - known academics and colleagues describe financial stability as a set of decisions and policies that deal with macroeconomic, monetary, supervisory aspects of economy and regulations of financial markets. i am confident, that those characteristics of financial stability will be widely covered in the proceedings of this conference. after a long deliberation of literature, i chose garry schinasi ( 2005 ) to define the financial stability, and i quote him : “ financial stability