Banking Regulation - Malaysia

For the past two decades, the world has been experiencing banking and financial crises at a higher frequency than during the previous decades and with significant costs to the economy. The recent 2008 Financial Crisis has caused the threat of total collapse in large financial institutions, downturn of stock markets as well as bail out of banks by many governments. This has brought more concern on banking supervision and regulation. There is a need to reform the financial regulation as it is one of the factors that contributes to the crisis. Many efforts have come underway to address many of the limitation in the financial infrastructure. Massive global legislative and regulatory responses are generated to address perceived market and regulatory failures responsible for occurrence of the crisis. At that time, majority of countries have experienced a systemic banking crisis requiring a major and expensive cost to fix their banking system. Therefore, it is important for a country to ensure their banking system is safe and sound.

While the impact was being felt more in Europe and the United States (US) during the crisis, increasingly it was becoming an issue in Malaysia. Malaysia has appeared to be in a prepared position to manage the spill over effects of the turmoil given that it has experienced and learnt the lesson of such crisis in just over ten year ago. From that, Malaysia is now said to be resilient to face shocks to the system as the effort of strengthening the foundation has been done. This has then ensured Malaysia to maintain its condition in the time crisis. Though the bank regulation is much better now, Malaysia should not take for granted that crisis could not happen following from greater capital account liberalization. Thus, further enhancement in the current regulation is needed. The difficult decision is how much to regulate lies in the tradeoffs associated within financial regulation. While too much regulation can constrain the credit channel and

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