EUROPE - An academic with specialist knowledge of financial regulation has advised MEPs to expand the Basel agreement and in future include pension funds among the groups of investors who should be consulted in a financial crisis long-term regulatory review.

Professor Stephany Griffith-Jones told MEPs at a hearing of the European Parliament's special committee on Financial and Economic Crisis last week that regulation-setters and legislators should include pension funds, trade unions and SMEs in any discussions concerning overriding financial regulation as the current Basel agreement largely concentrates its interest on banks.

Stephany Griffith-Jones is an economist at Columbia University, with expertise in international financial reform and regulation such as Basel II, hedge funds and derivatives, alongside specialist knowledge of global capital flows to emerging markets.

Speaking at the Economic Exit Strategies hearing, Griffith-Jones responded to a question from the special committee rapporteur Pervenche Beres on the long-term perspective by arguing the Basel agreement was probably too narrow and needed the involvement of pension funds in discussions concerning innovations of the institutional investment system, to counterbalance what is seen as the ‘short sightedness of financial markets'.

"We cannot leave this up to banks," she said.

Evidence from the hearing was published ahead of a report by the European Central Bank (ECB) about the lessons learned in relation to the functioning of the European financial markets infrastructures.

Its evidence suggests further work is needed on the direct monitoring of "critical counterparties' creditworthiness", once they critical participants are defined, alongside further stress-testing of the infrastructures.

Its focus had been to assess whether the existing risk management infrastructures could stand up to pressures during a financial crisis, and looked specifically at information flows during the default of a critical counterparty, the management of that default, behavioural factors affecting market liquidity and issues relating to over-the-counter (OTC) derivatives.

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