ardian fullani : how the financial crisis has impacted central bank cooperation and eu economic, financial and regulatory developments speech by mr ardian fullani, governor of the bank of albania, at the high - level conference “ on international central bank cooperation before, during and after the crisis ”, hosted by the european central bank, frankfurt am main, 9 december 2013. * * * dear participants, it is an honor for me to participate in this important conference and i want to thank the organizers for inviting me. in my speech i will focus on how the recent financial crisis has changed the central bank work with respect to the adoption of macro - prudential policy and its relationship with monetary policy. then i will share some thoughts on the experience of see countries during the crisis, and highlight some of the challenges they face given the recent economic, financial and regulatory developments in the eu. the crisis we are going through, being so profound and lasting, will leave its mark on economics in general, and central banking in particular. up until the great recession, monetary policy was living in a world that we may call “ the inflation targeting era ”. in many ways inflation targeting made the central bank ’ s job relatively simple, as long as it followed the policy correctly. the central bank, seen by the public as an independent institution, had to credibly commit to an explicit inflation target, in order to anchor mid - term inflation expectations. self - fulfilling expectations from economic agents and price setters would, in turn, help deliver the objectives of monetary policy. economists believed that by stabilizing consumer prices, financial assets would also behave in a stable and predictable way. the crisis painfully reminds us that behavior in financial markets is not always rational and lack of confidence in the markets can spiral out of control, sending shockwaves throughout the economy. escalating asset prices and their sudden burst affected significantly the behavior and balance sheets of the economic agents and challenged the stability of the financial system. in this respect, the concept of financial stability was seen as a byproduct of monetary stability. micro - prudential supervision was focusing on the soundness of individual financial institutions, with the belief that this was sufficient to ensure aggregate stability of the financial system. again, the recent financial crisis made it clear that micro - prudential supervision was insufficient to detect and address buildup of risks in the entire financial system due to externalities, herd behaviors, common exposures and pro - cyclicality in financial

guided by the vienna ii initiative. in addition to preparing implementation of various regulatory standards related with countercyclical macro - prudential tools, with particular short term importance is the issue linked with recognition and the treatment of the npl. in the recent past, some of the countries in the region have been affected by the deleveraging process started in the eu financial system. this was mostly felt during 2012, following the higher capital requirements associated with eba stress test of november 2011 and relevant steps taken by national “ home ” authorities to comply with capital requirements. next in line is the asset quality review by the ecb. our hope and belief is that this time, concerns of the see countries regarding potential further deleveraging, will be considered more carefully and more specifically, to avoid further potential deleveraging. let me reiterate that the economies in our region currently rely heavily in bank financing and there is a growing need to make credit flow again in the economy. to conclude, allow me to point out the importance of establishing a sound framework for macro - prudential policy, both in terms of tools and institutional approach, in order to deal effectively and timely with prevention of systemic risk. they should be accompanied however, by measures related with the strengthening of crisis management framework. if designed properly, macro - prudential policy should avoid any conflict with monetary policy, and instead should complement it appropriately. countries in the see should benefit from synergies related with the adoption of the single supervisory mechanism. these benefits could be larger if we manage to strengthen our regional cooperation. we are still concerned with potential further deleveraging following the forthcoming asset quality review process and we hope that ecb and other authorities in the eurozone and eu, could design it to limit these impact in maximum. thank you very much for your attention! bis central bankers ’ speeches