gent sejko : bank - business relationships : common economic challenges in face of global covid - 19 pandemic address by mr gent sejko, governor of the bank of albania, to the discussion forum on'' bank business relationships : common economic challenges in face of global covid - 19 pandemic ”, tirana, 13 may 2020. * * * dear representatives of business community in albania, dear banking system executives, first, i would like to thank you for your participation in this round table, held to discuss on the way and optimum instruments to face the common challenges ahead. this meeting is being organised under extraordinary circumstances. the outbreak of covid - 19 pandemic and the prudential measures adopted to confine it, drove to a rapid drop of the demand for goods and services, in the domestic and foreign markets, and to a considerable contraction of output. the challenges we are facing are serious, in terms of both size and complexity. the albanian economy is expected to undergo a strong drop of the economic activity during 2020, in those levels never being experienced during the last two decades. it will be accompanied by an increase of unemployment, fall of revenue, and financial difficulties to firms and households. in the microeconomic view, the fall of revenue, reduction of liquidity and worsening of solvency will test the financial stability of firms. in the macroeconomic view, the increase of private and public debt will test the stability of economic equilibriums of albania. last, the shock experienced by the real sector will not overcome without leaving traces in the financial market and in the indicators of the banking sector ’ s business, as well. the dimensions and complexity of the crisis demand for a coherent and comprehensive response. absolutely, public authorities have the primary role to play in this regard. the fiscal, monetary and financial stimulus, are essential instruments to boost the aggregate demand, mitigate the liquidity problems and avoid the long - term consequences of the crisis. nevertheless, firms and banking sector should not consider themselves as passive consumers of the economic policies, but as exceptional actors in our efforts to resolve the crisis. the stimulus of public authorities could be neither effective nor potentially sufficient, without the adequate reaction of both firms and banking industry. dear guests, allow me to introduce briefly the reaction of public authorities, and further to share with you our vision on the challenges and role that the albanian firms and banking sector should play. 1. reaction by public authorities in the face of

causes, about public authorities ’ reaction and about actions to be taken, in order to raise the global financial system ’ s resilience. now, allow me to deal briefly with the main features of this unmatched crisis, and then continue with some arguments on the functioning of the albanian financial system and some necessary regulations for its further perfection. the crisis originated in the usa through the bursting of the housing bubble, bringing a number of existing problems to the fore. now, it has become clear that global imbalances of currency flows, affected by irresistible behaviour of expenditures or savings between developed and developing ones, have led in the course of time to extremely easing monetary policies in advanced economies, which have further deepened these imbalances, thus leading to rise in the financial activity risk, while searching for a higher return from investment. innovations in financial products reflected inside or outside financial institutions ’ balance sheets, found the necessary mechanism to conceal the real risk size in the extreme stratification. management structures ’ remuneration policies of financial institutions that were at the heart of the crisis supported the aggressiveness for short - term and unsteady profits on the back of the need for a better understanding of risk, intending a positive performance and long - term investments stability. several market mechanisms resulted non - efficient to precede developments in some global - wide institutions. pronounced weaknesses were reflected even in financial market regulatory authorities, who believed that difficulties would be sorted out by a market discipline mechanism or by a greater reliance on internal models of financial industry assessment. also, it has become clear that the supervisory regulatory authorities have not paid due attention to developments that affect the overall financial system, focusing more on certain institutions ’ behaviour. from this viewpoint, it is deemed that actions to monitor the overall price performance of non - financial assets, the way of estimating them and recording them to bank balance sheets have been insufficient to pre - empt unjustified increases and to avert their procyclic moves. all these elements are regarded as conclusions that go beyond certain jurisdictions and require a global response in the context of increased financial integration and ongoing economic globalization. emerging market economies are affected differently from this turmoil. the crisis shudder hit harder the countries with an economy damaged from macroeconomic and financial policies, with decreased competitiveness, reduced space for financial stimulation, with an unbalanced economic growth or an underlined dependence on foreign financing resources to stimulate an unrestrained economic and financial expansion. in the face of an extremely difficult financial situation