at a deeper level it also changes the structure of the financial system. large, interconnected banks effectively enjoy insurance protection courtesy of the state. if they encounter distress they can depend on the state to bail them out as they are deemed too big – or too interconnected – to fail. however, this implicit state insurance policy flies in the face of a fundamental principle of the market economy. a principle which walter eucken summarised in a single sentence : “ those who enjoy the benefits must also bear the costs. ” this liability principle is the bedrock of any functioning market economy. once it is abandoned, economic agents change their behaviour, giving rise to moral hazard. such an environment incentivises large, interconnected banks to enter into high - risk transactions. if these transactions are a success, the bank will reap the benefits, however if the same transactions make a loss, it is the taxpayer who may ultimately suffer. thus, large interconnected banks intrinsically pose a risk to financial stability. at the same time, this is precisely why they engage in such risk - taking in the first place – which all makes for a dangerous feedback loop. this is where the boundary between market and state becomes blurred, thus generating the aforementioned grey area within which the standard division of responsibilities between market and state ceases to apply. the state ’ s role is no longer confined to setting the rules, rather it becomes an active agent itself on the playing field. and this is the cause of the problems i have described. so how can we redraw the boundary between market and state? we should start by looking at the problem of banks ’ systemic importance. this should also be the first point we seek to tackle. the question we need to ask is : should banks be allowed to fail? my response is : of course banks should be allowed to fail. the possibility of market exit is a key element of any market economy. business models that fail to succeed must make way for better business models. however, with respect to systemically important banks, this principle does not apply. in reality, as martin hellwig described in his book “ the banker ’ s new clothes ”, and i quote : “ the question of whether banks should be allowed to fail is, however, seldom raised as a bis central bankers ’ speeches basic starting principle. ” i have just elaborated on the reasons for this. so how we should go about re - establishing the possibility of failure for all banks, including systemically important ones

have a long history operating with respective greek offices. the fact that such ventures could also involve greek capital in the case of pure joint investments makes one more argument in support of my observation. according to the bank of albania surveys, greek companies are ranked first by the size of capital invested in the albanian economy, while holding the second place for the number of foreign direct investments. the involvement of these banks in financing such activities will play a positive role in shifting the balance of the loans portfolio from retail and consumer crediting toward production activities in industry and agriculture. at the same time, it might also fuel the growth rate of credit to economy, which has already experienced very rapid growth during the last two years, raising concerns for macroeconomic and financial stability. the results of reforms were not limited only to the openness and development of domestic financial market. they generated price and financial stability, sustained economic growth, assisted institutional building and increased confidence. these developments attracted interest of, and brought big financial groups in the region in general and albania in particular. as i mentioned above entry of big financial groups, and the consolidation process that has followed since will continue to grow. what we are observing right now in the market is that the big fish is eating the small fish ; the very big fish is eating the big fish in the european market with implications for the host countries. however, the process is far from over, gigantic fish ( global player ) might enter the region by eating the very big fish. last but not the least, there will be mergers among domestic banks as well. despite the increase in the concentration ratio that comes with these mergers and acquisitions, we have started to observe increased competition in our market. this competition increases efficiency, introduces new services and products, lowers spreads and generates positive spillovers for economic activity. while this makes a good precondition to foster financial stability, it is not a sufficient condition to increase financial discipline. currently, the activities of financial institutions and commercial banks have a limited scope ; however, we are starting to see the signs of financial conglomeration. we have no doubt that this trend will grow and continue in the future. it will bring innovation, new financial instruments and products in the market. along with this, rapid growth of credit and debit cards as well as other systems of payments will continue to grow. while these instruments might not subside or even reduce the use of cash, this trend must be taken into account. transition economies of the region are lucrative markets. they