As the economic development of Albania advances so has the quality of legislation and the banking law which came into force in 2007 and was further amended and improved recently in 2011. As a result of the phenomenon of the collapse of the pyramid scheme in 1996, which was unprecedented due to its scale relative to the size of the economy, the fate of Albania’s banking activities looked extremely bleak. Not only was there huge economic loss and severe destabilisation of the country but it had shaken the public’s confidence in the country’s banking system. But the resilience of the country’s economy has shown through and now the financial stability of the country and people’s confidence is indeed restored. At present the banking law in Albania comprises of a Banking Act approved and passed by parliament, and several regulations issued by the Bank of Albania (BoA) that largely legislate for the way in which all banks in the country are being licensed and supervised. The regulations of the Bank of Albania are approved by a supervisory council that is mostly selected by parliament that is to act independently of the government. There is almost no case law to speak of that assists with the interpretation of any banking law or regulation in practice as banking litigation is almost non-existent in Albania. The law provides notably for the formation and the activities of banks as well as non-banking financial institutions including the micro-credit institutions, payment services, adequacy of capital of investment companies, credit institution monitoring and controls of the large risk exposures of the credit institutions, as well as the consolidated supervision of the credit institutions now to be regulated in compliance with European standards1. The Banking Act is also detailed in the description of the provisions leaving less room for interpretation and use of arbitrary powers. A fee payable by the banks has also been introduced in respect of the supervision of the banking activity indorsing principle 1 of the Fundamental Principles of the Bank for International Settlement (BIS). The act stipulates better rules to administer the way that banks and branches of the foreign banks are organized and managed, further minimising the risks related to the management of the banks. The act goes some way into detailing the powers of the board of directors while imposing liabilities on its members regarding bank management. It also contains more detailed provisions regarding potential conflicts of interest in the management of the bank. The law provides for stricter risk management through capital adequacy ratio. Under this Act, the branches of a foreign bank have to retain a certain amount of liquid assets within the Republic of Albania. A duty is also imposed on the banks to specify detailed methods for the calculation of the risks both on an individual and consolidated basis. Specific risk elements are detailed in the act.
In this chapter we consider some aspects of the Albanian banking law. The banking act centres around the regulation of two main areas, that of banking activities and that of financial activities carried out by banks or branches of foreign banks and more pertinently by non-banking financial institutions.