4  BIS Review 71/2008  The recent crisis also brought to light the critical importance of coordinated and prompt response by regulators in dealing with crises, whether through market interventions or in the resolution of banking institutions that are experiencing difficulty. Coordinated actions by the Central Banks in Europe and the United States have relieved the liquidity tensions in the financial markets. However, national arrangements for dealing with problem banking institutions are being severely tested. Decisive action is vital to ensure the continued intermediation process to stem the spread of the financial crisis within the financial system and to the real sector. Such early action will also reduce the cost of the crisis. For Malaysia the cost of the crisis ten years ago was less than 5% of GDP. Danamodal in fact recorded a pre-tax profit of RM200 million upon full repayment from the recapitalised institutions. More recently, additional initiatives have been taken to strengthen the safety net, interagency coordination arrangements and the legal framework for interventions. Today, we have a holistic financial safety net framework in Malaysia which includes a lender of last resort framework and a comprehensive deposit insurance system. The regulatory and supervisory framework is also supported by enhanced intervention framework for dealing with banks under financial stress. The enhanced supervisory intervention powers is to be embodied in the amendments to the various legislations administered by the Central Bank. The provision of liquidity support by Bank Negara Malaysia for financial institutions in distress is a key component of the safety net.

There is tremendous potential for Malaysian banks to reap greater benefits from increased regional integration through diversification of income streams and the fast-growing prosperity of the region. Such the expansion however, needs to commensurate with the institutional capacity. On reciprocal grounds, consideration will be granted towards enhancing the presence of ASEAN-origin financial institutions in Malaysia. Indeed, liberalisation including greater market access may be granted to countries where there are also reciprocal potential for Malaysian financial institutions to promote greater economic and financial integration in the region. The operating landscape moving forward is going to be increasingly challenging. Competitive pressures and global developments will continue to shape the transformation process of the financial sector. While the growth prospects of the financial sector remain positive, with the financial sector having emerged stronger and more effective, it also has the prospects of staying ahead of the curve, break new grounds in the development and quality of banking services and delivery channels. The ability to compete will drive performance and innovation within the financial sector, raising the potential to contribute to the economy to make the leap towards realizing Vision 2020. There is a high degree of confidence that the Malaysian financial sector will rise to the challenge. On that note, I wish you a productive and successful seminar. Thank you. BIS Review 71/2008  7