ABSTRACT
In the aftermath of the Asian financial crisis, it became apparent to policy-makers in Malaysia that the concentration of financing in the banking system and the fragmented nature of the financial system were a major source of vulnerability to the economy. With rising international economic and financial integration, that vulnerability was likely to get larger as the economy experienced more frequent external shocks. Policy-makers acted preemptively and initiated steps to undertake a consolidation and deepening of the financial system, even as they progressively undertook financial liberalization and increased the overall level of competition in the financial system. This chapter describes the results of those efforts. It looks at the overall structure of the financial system, the institutional and legal framework, the governance and oversight of financial stability, as well as some of the policy issues and dilemmas faced by policy-makers today.
