This confidence is justified. But one of the consequences of the resilience of the system in the face of past shocks is a higher degree of confidence in a benign and stable future. And this confidence itself can increase the risk of future instability. It is critically important, then, that we continue to strengthen our financial system. The most important dimension of this challenge is to ensure that the size and the quality of the cushions maintained by financial institutions against the risk of adverse outcomes are sufficiently strong. This is particularly important in the case of the relatively small number of bank-centered financial institutions that now play a much more central role in our financial system. Their extraordinary size and diversity diminishes their vulnerability to shocks. However, it also exposes them to a broader array of potential shocks, and magnifies the potential damage to the system should one of these institutions stumble or fail. We need to ensure that the level of insurance these core institutions maintain against risk – insurance in the form of their capital and liquidity cushions, their operational resilience, and the quality of their risk management and control systems – are calibrated to reflect their greater systemic significance and the greater complexity of the challenges they face in managing more diverse businesses. This is true not only for the largest banks, but also for GSEs like Fannie Mae and Freddie Mac, and also for those non-bank financial institutions that play a critical role in the wholesale financial markets.
Clearly, there is room to further unlock the potential of SMEs in Malaysia. While the banking system remains the main provider of funds to support the activities of the SMEs, there is the tendency for this system to focus on the more established SMEs. It can also be argued that the banking institutions also lack the appropriate skills and experience to develop and nurture the SMEs. This is where the presence of DFIs is so critical, that is to provide the complementary services, both financial and non-financial, particularly to support viable but smaller SMEs which are unable to obtain financing from the banking institutions. In Malaysia, there are at present two major DFIs specialising in supporting the development of the SMEs. These are Bank Pembangunan dan Infrastruktur Malaysia Berhad and the Credit Guarantee Corporation (CGC). Each of these DFIs has been assigned the specified mandated roles in assisting the SMEs in Malaysia. Bank Pembangunan is entrusted with the mandate of promoting entrepreneurial development by not only providing financial services to the SMEs, but also assume the nurturing and developmental role through the provision of advisory and consultancy services to this targeted group. Meanwhile, the CGC is mandated to assist the SMEs that lack track record and collateral to have access to financing, by providing credit guarantees to enhance the SMEs' accessibility to credit facilities.