This paper discussed the chronology, indicators and causes of global credit crisis to the financial institution and firms. It begins with the background of global credit crisis and follows a discussion of the causes of the credit crisis, particularly the role of regulatory incentives underlying excessive international and domestic borrowing, lending and investment. The world economy is facing the most severe credit crisis since the Great Depression of the last century. The risk of global recession has heightened significantly and volatility of commodity prices, which is the mainstay of most developing countries like Malaysia has inclined. If this situation continues to deteriorate, developing countries could be in great jeopardy. This study discussed the causes of the credit crisis on global economy. It was discovered that the credit crisis will cause fall in commodity prices, decline in export, lower portfolio and fall in equity market and decreasing in remittance from abroad. From this basis, the paper looks to the international responses to the credit crisis.. In this context, it considers issues relating financial stability, with particular attention to possible regulatory changes and their causes.
