In response to the Asian crisis, Malaysia undertook a number of policy measures to curtail the deterioration in the financial sector and assist in its recovery. These actions were initiated early and, supported by better domestic and regional economic conditions, have led to substantial improvement in the sector’s performance. This section gives a brief background of the financial sector, discusses its performance up to end-2000, and examines key elements of the reforms under way to strengthen its structure and regulatory regime in the context of the Financial Sector Masterplan.1 Reform aspects that are highlighted include a bank merger program that aims at creating larger and more efficient domestic institutions, and the upgrading of the prudential supervision system.

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