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 rude 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. In the aftermath of the Asian financial crisis, international financial institutions (IFI), national stakeholders and academia devoted a great deal of energy at improving the quality of the regulatory and supervisory framework for finance. It was hoped that a combination of stronger regulatory frameworks and more effective supervision would help to avoid, or at least mitigate the effects of, a possible next crisis.

Emerging initiatives, such as the Basel Core Principles for Effective Bank Supervision (BCP), were reinforced and new initiatives, such as the IMF-World Bank Financial Sector Assessment Programs (FSAP), were implemented. In the same period, work on the Basel II regulatory framework saw the light of day. These international efforts were complemented by revisions, by several national authorities, of their supervisory architecture in order to enhance the effectiveness of supervision. This wave of revisions was inspired by the unification of all financial supervisors into the Financial Services Authority (FSA) in the UK in 1997. Crisis mitigation brought additional arguments to the table for revising the national supervisory architecture. Finally, work was also undertaken to strengthen the governance of supervisory agencies. Several studies on the pre-2007 years showed some, albeit not conclusive, evidence that the implementation of the BCPs, better supervisory governance, and supervisory unification were generating a positive impact on financial sector stability and soundness. So, hope was growing that these improvements would mitigate the impact of any possible future financial crisis.