The Economic Crisis: Did Financial Supervision Matter?
48 Pages Posted: 19 Nov 2011
Date Written: November 2011
The Asian financial crisis marked the beginning of worldwide efforts to improve the effectiveness of financial supervision. However, the crisis that started in 2007–08 was a crude awakening: several of these improvements seemed unable to avoid or mitigate the crisis. This paper brings the first systematic analysis of the role of two of these efforts - modifications in the architecture of financial supervision and in supervisory governance - and concludes that they were negatively correlated with economic resilience. Using the emerging distinction between macro- and micro-prudential supervision, we explore to what extent two separate institutions would allow for more checks and balances to improve supervisory governance and, thus, reduce the probability of supervisory failure.
Keywords: Asia, Bank supervision, Banks, Central bank role, Cross country analysis, Financial crisis, Financial sector
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