This is the second year project of the integrated project 'Institutional Adjustment in East Asia: the Challenge of and Response to Globalization - Comparing Taiwan and Other Asian Countries.' Based on the analytical framework of new institutionalism, this project compares the financial politics and institutional relationships in Taiwan, Thailand, and Malaysia. Financial politics and institutions include both those of banking and security markets. The major finding is that the financial crisis in these three countries was a result of the oligopolistic alliance among the state, political parties, conglomerates, and local factions. The alliance excluded the direct participation of foreign financial institutions and caused the distortions of local financial markets. However, institutional similarities and differences among these three countries existed. In Taiwan, the KMT had continually controlled the state, and been a major player in the banking and security markets. Being controlled by the KMT, the state financial regulators, such as the Central Bank and Securities and Futures Commission, could not effectively monitor and punish violators of market rules. New conglomerates established new banks and security companies. They earned handsome profits via privileged information and avoided state regulations through their representatives in the Legislature. Local factions contributed to the deterioration of local financial institutions, because of their close connections with the KMT and conglomerates during elections. Both Thailand and Malaysia had a similar institutional system as in Taiwan. But in Thailand, a non-autonomous state, patronage party system, financial conglomerates, and expensive local factional politics caused the financial crisis. By contrast, Malaysia suffered less and recovered faster than Thailand did. This was due to the fact that the Malaysian state was relatively autonomous, the UMNO had dominated its members and opposition parties, local factional politics was weaker, even though privileged conglomerates had weaken Malaysian financial systems.