The Communist regime nationalized all banking and financial institutions in 1945 and established the Bank of the Albanian State (now simply the Bank of Albania), which became the bank of issue. The bank also controlled foreign transactions, helped prepare financial plans for the economy, accepted savings deposits, financed economic activities, and performed other banking functions. An agricultural bank was created in 1970 to provide credit facilities for agricultural cooperatives.
On 10 August 1949, the Directorate of Savings was established to grant loans and to accept savings deposits in branches throughout the country; the system has grown steadily ever since.
When the Soviet Union collapsed in 1991, Albania decided to develop a market economy. The banking system changed to meet the demands of a free-market economy. However, in October 1996, the Islamic Conference's financing arm, the Islamic Development Bank, made a $12 million loan to Albania. The logic of the government's Islamic focus is unclear.
The government's position has been weakened considerably as a result of the collapse of four of the country's major pyramid investment schemes, leading to anarchic, nationwide demonstrations by furious investors. In January of 1997, a 20,000-strong crowd marched on Skanderberg Square, where it demanded that the government guarantee all deposits in the companies. Notable pyramid investment companies included VEFA, Kamberi, Populli, Xhaferri, Gervnasi, Gjallica, and Sudja.
The informal financial market has absorbed millions of dollars of savings and remittances in recent years (estimates run as high as $1 billion), at the expense of the country's inefficient and uncompetitive banking sector. The pyramid investment schemes attracted hundreds of thousands of depositors—local estimates put participation in the companies at about 75% of all households—by guaranteeing to pay high interest rates on cash deposits within a short period of time.
Much of the blame for crisis rested with the government, whose policy towards the companies was not simply cavalier but actively encouraging. It did not pay attention to requests made by the central bank governor to regulate the pyramid schemes more tightly.
The privatization of the three state-owned commercial banks has long been advocated by the International Monetary Fund and the World Bank. The government has privatized the Rural Commercial Bank and the National Commercial Bank, and is working towards privatizing the Savings Bank of Albania, which holds nearly 80% of all Albanian bank deposits. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $997 million. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $2.7 billion. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 10.82%.