Qué será, será? The financial system in the next 15 years
Last week, the ESRB celebrated its 15th anniversary with its 10th Annual Conference. I had the honour to moderate the concluding panel under the theme of 'Qué será, será? The financial system in the next fifteen years'. I will not try to summarise the very rich discussion we had but rather comment on some insights I gained through the discussions we had among the panellists.
First, while digitalisation has already led to faster deposit flows (especially relevant during crisis situations), Artificial Intelligence (AI) might make these flows even faster if they are managed by algorithms, posing additional challenges for financial institutions and supervisors alike. More generally, the widespread use of AI will create new sources of risks (as outlined in this ESRB-ASC report), with an arms race between cyber-attackers and defenders as just one example. This will also increase operational risks, with capital buffers not always being the most obvious instrument of resilience. While the ESRB has come out with a Warning on Frontier AI Models in July, there will certainly be more black swans around the corner during the next 15 years.
Second, AI is just starting to be used more prominently in the financial sector, but we will certainly see an increased use over the next 15 years. As someone said during the two days: you cannot hide from AI. One important question is: if AI makes the financial sector more efficient by reducing costs, will this result in benefits also for the real economy? There are countervailing arguments, including the fact that the necessary investment in AI technology is feasible only for large financial institutions, potentially increasing concentration further. This reduction in competition might prevent cost savings being passed on to the real economy. Not to speak of the risks that concentration in a few AI providers can pose.
Third, the question was raised, whether we really need an ever faster financial system, with atomistic settlement (though not to be confused with immediate settlement!). While moving from T+2 to atomistic settlement might reduce costs by eliminating an extensive intermediation chain, maybe we need more ’sand in the wheels’, as Tobin demanded in the 20thcentury. Related, is the financial system growing too big? As I discussed previously, there are different ways to think about ’too much finance’. We are currently observing an investment boom in AI, partly funded with debt. Is this credit boom related to AI a ‘good’ or a ‘bad’ boom, i.e., will it taper off with the investment it funded as legacy or will it end in a bust and a systemic financial crisis? We might know the answer in 15 years. Another dimension is whether the financial sector's share of GDP will be increasing further and whether this actually benefits the real economy or whether it will rather result in a brain drain away from the real economy, as in the 1990s and 2000s.
Fourth, Europe moves through crises and that was exactly the case for the establishment of SSM and SRM. Europe’s banking sector is safer for it. Similarly, the increase in EU funding and issue of EU bonds came during the pandemic. So, the obvious question arises - do we need another crisis for Europe to push forward on the necessary financial integration, including for the Savings and Investments Union (SIU)? Obviously, one can argue that we are already in the midst of a crisis with the geopolitical threats from East and West. There is an important counterpoint here: the previous crises have contributed if not caused the rise of left-, but especially right-wing extremism across Europe which in turn undermines future reform attempts. So, pushing ahead with the necessary reforms before emergency late-night summits might become necessary would certainly be the wiser option.
Finally, the geopolitical and geo-economic changes will have important implications for the financial sector in the next 15 years, as will a possible success of the Savings and Investments Union. For macroprudential authorities, these changes will also imply changes in the frameworks, models and policies we are using. Another important question is whether we can still rely on international cooperation in the next systemic financial crisis as we did in previous crises? And what if the US dollar ceases to be the anchor of the global financial system; to which extent should the global role of the euro be strengthened in anticipation?
In sum, the ESRB will have a busy agenda for the next 15 years and it will be driven a lot by technological developments (most prominently AI), the progress in financial integration within the EU and geopolitical changes affecting the financial sector.
5. October 2026
More elections in Germany
Two more regional elections took place in Germany last weekend, one in the capital Berlin and one in another Eastern German state - Mecklenburg-Vorpommern (MV). While the AfD came again in first in MV, it has no path to forming a government, unlike in Saxony-Anhalt. Similarly in Berlin where it came third and thus has no perspective of being part of any coalition talks.
The results are nevertheless another shock, not just for the German government and Chancellor Merz (whose CDU lost its first position in Berlin to the left-wing Die Linke and failed the 5% threshold in MV). There were immediate calls for a change in the reform policies of the federal government and even for a resignation of the Chancellor. On the first, I could not disagree more: why should the vote of 9% of the electorate (if you take the three states together) undo the federal election results from 18 months ago. And while there is nothing wrong (and a lot right) in listening to the political message provided in these state elections and discussing political implications, do we really expect the German government to stab Ukraine in the back as the Putinist AfD and BSW demand? Does it really make sense to yet again give up on the necessary reforms of the pension system and thus simply delay the day of reckoning to a later day (also known as kicking the can down the road)? And while it might seem superficial to think about the problem as that being of political marketing or packaging, there is an important element of this. Germany has been lacking politicians with the necessary charisma to confront the country with the necessary honesty but also energy to push through reforms.
There is still the important question of what explains the rise of the extremist right over the past decade. One has to differentiate between three different levels, I would argue. First, the European if not trans-Atlantic level: there has been a rise in right-wing populist parties with different degrees of extremism across Europe. In the UK, this wave was behind the Brexit referendum. In some countries, the right-wing parties seemed to have peaked, such as in Sweden at the recent elections. In some cases, these parties have entered government and have lost support afterwards (Finland); in other cases they have significantly moderated (Meloni in Italy). Behind the rise of these parties is often a victimisation culture and looking for a scapegoat for problems that are hard to address and often have been ignored by mainstream parties. But while there seem to be thus clear demand factors, there are certainly also supply factors, with the rise of the extremist right partly driven by Russia and Elon Musk with his social media platform X.
Second, on the German level: the 2015 migration wave seems to have been the trigger for the rise of the AfD. However, there have been broader trends, related to previous chancellor Merkel’s approach of ’no alternative’ (which gave the AfD its name) and a general discontent with declining quality of infrastructure and public services. As I wrote previously, the rising costs of service provision in advanced countries clashes with higher demand, related not just to the ageing of societies but also a number of recent shocks (including the pandemic and energy price shocks).
Finally, the East German level: One important observation is that East Germans were never confronted with the Nazi history after World War II. The civic education that helped West Germans confront the Holocaust and the horrors of the Nazi regime never took place in East Germany. This provided a breeding ground for right-wing sentiments even before the unification, which then came out after the unification. The rise of the AfD allowed the channeling of this. In addition, there is a special victimisation culture in Eastern Germany (similarly practiced by two other parties in Eastern Germany, Die Linke and BSW), seeing themselves as the losers of the unification.
What to do? First, it would be wrong to declare all AfD voters Nazi; it is important todinstinguish between voters and the party itself. Second, while there are new calls for a prohibition of the party (which effectively has to be approved by the Constitutional Court whose favourable vote would not be certain), it seems too late for that. On the other hand, the ‘Brandmauer' (no coalitions and no majorities with the AfD) has to hold. In January 1933, Hitler became chancellor even though his party had lost votes in the last elections a few months earlier, but based on the arrogant assumption by conservatives that he could be controlled in a coalition government. The rest is cruel history…. While the German post-World War II Constitution has many more safeguards than the Weimar Constitution, there is still a lot to be said in favour of keeping this party at arms-length from any position of power, also given its proximity to Russia, which is, in all but name, already at war with Europe, including Germany. However, it is critical to engage more directly and aggressively with the AfD, its nationalist and cruel programme (including of remigration of millions of German residents) and its false promises. Retreat by adopting positions like the extreme right still seems the wrong approach, voters prefer the original over the copy.Finally, the election successes of the AfD in the East have also shown that retail politics still plays an important role - where there are popular first ministers (Ministerpräsidenten) of either SPD or CDU, they have managed to somewhat stem the AfD wave.
Finally, what will happen if the AfD enters government in Saxony-Anhalt? There will be a quick realisation that most of their objectives will not be achievable. However, this might lead to a permanent stand-off between federal and state authorities and the AfD declaring themselves a victim of the federal government and the EU, radicalising them further (similarly to what happened during the Brexit negotiations). So, I am somewhat sceptical about the hope that the shock of an AfD government with reality will help reduce their popularity.
Dangerous times ahead, indeed!
25. September 2026
Supervisory stringency and finance for innovation - now forthcoming in JIE
As with many papers, my joint paper with Miguel Ampudia and Alex Popov, "Out with the New, In with the Old? Supranational Bank Supervision and the Composition of Firm Investment” took some time to go through the review process, but is now forthcoming in the Journal of International Economics. And contrary to what sometimes happens in the review process, the paper got actually better, more focused, and using additional data sources we did not use in the original version.
Does supervisory stringency foster higher growth by reducing the risk of systemic fragility or does it hamper growth by reducing funding innovative firms?
We answer this question using exogenous variation generated by the creation of the Single Supervisory Mechanism (SSM) in the euro area to examine the effect of more stringent supervision on lending standards and borrowers’ investment composition. Specifically, we compare borrowers of Significant Institutions - subject to more stringent supervision by Joint Supervisory Teams of ECB and national supervisors - to borrowers of Less Significant Institutions that stayed under national supervision. We find that relative to firms borrowing from banks subject to national supervision, firms borrowing from banks subject to supranational supervision reduce their share of intangible assets (and thus increase their share of tangible assets). This effect does not pre-date the supervisory reform and does not obtain in non-SSM jurisdictions, of the EU, thus is not driven by EU-wide regulatory reforms. Similarly, R&D in country-sectors more reliant on Significant Institutions declines more and this ultimately results in lower productivity growth. Economically speaking it is not a big effect, but statistically significant.
The reallocation of investment away from intangible assets is stronger for small and young firms and appears to be driven by a short-term reduction in lending and a persistent increase in collateral requirements by banks, which in turn might explain the shift away from intangible assets that are more difficult to be used as collateral.
Overall, our results suggest that more stringent supervision following the establishment of the SSM is associated with a decline in lending to firms, which is accompanied by a shift away from intangible assets and towards physical assets that are more easily collateralizeable. This raises the possibility that more stringent and more centralized bank supervision can affect negatively investment in the type of capital that is central to modern economies. Our results thus point to an important trade-off associated with more supranational bank supervision: there are positive effects for financial stability, as also shown by previous studies, but there is also reduced bank financing for the knowledge economy.
There is also a different way to interpret these results, linked to the discussion on strengthening capital markets in Europe. There is evidence that banks are not in a good position to fund firms and sectors relying on intangible assets, including in my own work with Robin Dottling, Thomas Lambert, Mathijs van Dijk. This together with the results of the current paper indicates a need for a stronger role of non-bank financing providers in European economies to foster their transition to a knowledge economy relying on intangible rather than tangible assets.
18. September 2026
September 11, 25 years ago
Living in Washington DC at that time (or Arlington, VA to be more precise), I can remember 9/11 as if it were yesterday. Obviously, my experience pales in comparison with the experience of those working in the Twin Towers or the Pentagon or their family members.
Actually, I even remember September 10 very well, because of what happened the following day. I gave a seminar at the University of Maryland that Monday, followed by a very nice dinner with several faculty members. Tuesday morning started the usual way, with a short metro ride to the World Bank. Then the planes hit; I heard my colleagues talking in the corridor about some weird plane crashes while working away in my office; when I tried to check the Internet to confirm what they were talking about I couldn’t as websites like CNN would not load. Finally, one of my colleagues got an old-fashioned radio and we could listen to news there. Shortly after, our manager told us to leave Washington DC and try to get home to safety (as we found out later, the World Bank president tried to make a public announcement to this effect across all buildings, but the system was not working).
While most of my colleagues headed out of town, I headed towards the Mall, where my wife was working on that day as a volunteer in the Smithsonian. However, they would not allow me into the museum as it had been closed to the public. Finally, she, two of her colleagues and I met up, and we made our way home walking, too afraid to take the Metro. Walking down the National Mall felt scary given the news that a fourth plane was headed towards DC (which later crashed in Pennsylvania brought down by courageous passengers). It was only in the afternoon and at home, when I finally saw the pictures of the Twin Towers collapsing and finally realised what had happened
9/11 was a game changer, both on the personal and global level. We decided to get mobile phones, we put together a survival kit with dry food and I had always a pair of sneakers in the office as walking home in dress shoes turned out rather painful. Most importantly, our feeling of safety and security was gone. The 9/11 attacks were actually the beginning of a longer period of fear in the DC area, starting with the Anthrax attackslater in 2001 and the sniper attacksin the fall of 2002.
Global politics changed decisively - the first and only time so far Article 5 of the NATO treaty was triggered and European joined US troops in Afghanistan. President Bush managed to squander the enormous goodwill vis-a-vis the US after 9/11 through arrogance and 18 months later with the invasion of Iraq to hunt for non-existing weapons of mass destruction. Neoconservatives rode high for a few years, though the backlash against the forever-wars ultimately also helped Donald Trump’s political career (who has now fallen into the same trap with an ‘easy-to-win’ conflict and ‘mission-accomplished’).
On the upside, the time after 9/11 seemed the last time when the US got together as one community - President Bush played a positive role by insisting on not scapegoating the Muslim population; how different from the current president! However, given the costs of the following military conflicts, it would have provided a good chance to roll back tax cuts and expansive fiscal policy; rather than, it constituted the start of an ever widening fiscal deficit, contributing to the accelerating housing boom which ended in the 2007/8 Global Financial Crisis.
A fateful and very consequential day!
11. September 2026
The surge of right-wing extremism in Germany
Earlier, this week, we remembered the 87th anniversary of the start of World War II, when Nazi Germany invaded Poland, followed two weeks later by Soviet troops invading Poland from the East. This Sunday, the AfD - which I dare to call Neo-Nazi - clearly won the elections in the small East German state of Saxony-Anhalt. Being part of the first German generation systematically exposed to the horrors of the German Nazi regime in school, while conversations about our grandparents and their role during this time were still off-limit, this is shocking. While parties of the extreme rights have entered state parliaments in the 1980s and 90s, this was mostly based on protest votes, with the party losing representation at the following election. It is only with the rise of the AfD and its increasing radicalisation (the party experienced several transformation from a libertarian anti-euro party over a right-wing radical party to its current extremist shape) that Germany now has a serious problem of a powerful extreme right.
Beyond the personal shock, on the background of German history, this is a scary development. While one might argue that this reflects broader European trends, with the radical and extreme right advancing everywhere, it was Germany where 20thcentury fascism materialised in its most evil form, with the Holocaust and World War II. Three generations after the end of the short-lived Thousand-Year-Empire, over 40% of voters in one German state (and supposedly almost 30% country-wide) are willing to vote for a party that not only downplays this part of German history but has a similarly extremist agenda, including massive remigration of millions of people currently living in Germany.
While the AfD ultimately did not get the absolute majority, it could have a governing majority together with a smaller, equally Putinist party. Clearly a big victory for Putin and his murderous regime and encouragement to deepen his hybrid warfare against NATO. And while political competition used to be between centre-left and centre-right in Germany, the growth of this party has made the formation of coalition governments very difficult and reduces competition in the Eastern states to AfD vs. the rest (including The Left, successor party of the East German governing communist party until 1990), thus effectively a competition of an autocratic vs. a number of democratic parties who are forced into a coalition. Will this be the reality after the next federal elections?
The question is what drives this surge of this extremist right-wing party? According to a recently published study, using data from 2014 to 24 from the Socio-Economic Panel, concern about immigration alone accounts for about 75 percent of explicable variation in AfD support and even for 90 percent of explicable variation in voting behaviour. Controlling for this concern, there is no significant role for socio-economic factors. Another study confirms that two third of AfD voters are driven by anti-immigration sentiments, while 20% are right-wing authoritarian. So it is not necessarily the losers of the East German transition process or more broadly of modernisation, that are attracted to the AfD, but it seems primarily a cultural phenomenon. This seems also to be reflected in the AfD’s election campaign, focusing on community, against migrants and nostalgia for an undefined past (former Communist Germany, even earlier?) Which in turn implies, that it is not about simply throwing more money at certain communities or groups. And while it might be interpreted as a backlash against the recently proposed pension reforms, it is hard to see how ceding yet again against defenders of the status-quo can help. Germany and Europe urgently need reforms! However, this also means that higher economic growth will not necessarily result in a lower vote share for such extremist parties.
This brings me to a broader point, beyond Germany: what drives the increasing discontent of voters with governments in most advanced countries. It is not just about complaints of excessive bureaucracy, but rather about (perceived) lack of services by governments. Is too much being asked of government? As economies grow, services become more and more expensive, known as Baumol’s effect. As manufacturing experiences higher productivity growth than the service sector, overall wages will rise and thus the relative costs and thus price of services. This is why in service sector we see less and less human interaction and more and more automated service. This affects especially governments who deliver an increasing share of services within economies, but especially human-intensive services (health care, social care, education etc.) This has been a long-standing trend, but with recent shocks and multiple transition challenges (climate, digital and demographic), demand for government services increases, while higher costs require cutting back on them.
As already alluded to above, the strengthening of right-wing extremism has also important geopolitical repercussion. Both the current US administration and Russia are interested in nationalist movements dominating individual EU countries, as this will undermine the strength of the European Union as geopolitical and geoeconomic player. Divide and Rule! This is another important point to keep in mind - some of the rise in right-wing parties across Europe is driven by social media campaigns from outside Europe (as most likely in the case of the Brexit vote, even through the Tory government refused to publish the report looking into this). Especially for Vladimir Putin, last night’s election results are excellent as they show weakening of support for Ukraine and of resistance against Russian expansionism.
A sad and difficult day for Saxony-Anhalt, for Germany and for Europe!
7. September 2026
Banking on Inattention - this year’s Ieke van den Burg Prize
Every year, the ESRB’s Advisory Scientific Committee awards an annual prize to recognise outstanding research conducted by young scholars on a topic related to the ESRB’s mission to prevent and mitigate systemic risks to financial stability. This year’s winning paper combines theory and empirical research in banking.
Explaining banks’ market power through their deposit franchise has been a long-standing research topic in finance and this year’s winners - Xu Lu and Lingzuan Wu -add to this literature with a fresh perspective - depositors’ inattention. Not reacting immediately to deposit inflows indicates a certain degree of inattention by depositors, which can be used by banks to not adjust deposit rates to changes in monetary policy rates. Using transaction-based data on individuals and zip-code level income and tax data, the authors measure depositor inattention as the difference between the response half-lives to unscheduled (e,.g., tax returns) and scheduled income (e.g., pachecks) at the depositor level. Aggregating this up to the bank-level, they show that a bank with one standard-deviation higher depositor inattention offers a 10 basis points lower deposit rate and passes through a 1% policy-rate change by about 3 basis points less. In the aggregate, commercial banks in the U.S. collectively derive about $2.6 trillion franchise value from their $5 trillion noninterest-bearing deposits and $10 trillion savings deposits by the end of 2022.
The authors accompany their impressive statistical exercise with a dynamic deposit-pricing model in which banks trade off current deposit spreads against future deposit base, with inattention dampening spread-sensitive outflows. One additional interesting aspect the authors point to is the rising importance of digital banking - both model and data confirm that this will reduce inattention and ultimate banks’ deposit franchise value.
Given the increasing importance of deposit flows andbank differences in the speed of these flow, especially during distress times, certainly a very important contribution to this literature and debate, with important implications for regulatory and supervisory authorities. The authors will receive the Prize and present their paper at the upcoming Annual ESRB Conference in early October in Frankfurt.
1. September 2026
Post-trading fragmentation as barrier to the Savings and Investments Union
Hans Degryse and I just published an ASC Insight on how fragmentation within the EU on the post-trading infrastructure for equities reduces the efficiency of European capital markets and increases costs for issuers and investors alike, while also posing stability challenges.
We argue that while fragmentation of equity trading at individual stock level across several trading venues can be good for efficiency, fragmentation in clearing, settlement and custody (the different steps of post-trading) increases the cost of post-trading and thus reduces the efficiency of capital markets. Reducing fragmentation in the post-trading landscape, however, requires a much stronger role for regulators and supervisors, especially at European level.
We have some interesting graphs in the ASC Insight comparing the US and European post-trading infrastructure. The most striking element is that today there are nine Central Counterparties (CCP) and 34 Central Securities Depositories (CSD) in the EU compared with only one CCP and one CSD in the US. The costs are also higher in the EU: settlement costs are, on average, 65% and custodian fees 160% to 500% higher in Europe versus the US. The fragmentation in in CCPs and the limited interoperability reduces netting, locks up initial margins and, increases collateral requirements. In the case of CSDs, differences in national securities regulation and tax legislation implies a choice for issuer CSD based purely on nationality of the issuer and thus high switching costs and market power for issuer CSDs. While Distributed Ledger Technology (DLT) has the potential to lead to end-to-end transactions with “atomic settlement”, there have been few pilots so far and there are risks of different standards, ledgers and questions regarding interoperability. The coexistence of legacy systems and DLT may also reduce netting possibilities and lead to higher liquidity and collateral needs.
While there are strong arguments to reduce the post-trading fragmentation to increase capital market efficiency, in line with the stability mandate of the ESRB, we also highlight four financial stability concern of the post-trading fragmentation. First, fragmentation across CCPs reduces multilateral netting and raises aggregate collateral demand, with procyclical implications in situations of stress. Second, concentration in issuer CSDs creates single points of failure whose operational disruption would propagate across the settlement chain; this, however, might be exacerbated if there were a single CSD in Europe. Third, interoperability arrangements, while alleviating the netting problem, introduce inter-CCP contagion channels, as already highlighted in previous ESRB work. Fourth, the coexistence of distributed ledger technology (DLT) and legacy infrastructures raises questions of netting efficiency and collateral demand under stress that are only beginning to be understood.
We discuss some pathways for reforms. In the case of CCPs, this includes further enhancing interoperability between CCPs as well as possibly mandating one core CCP across trading venues, while keeping user choice by requiring interoperability with other CCPs. Critically, and in line with recent Commission proposal, we call for a stronger role for ESMA to avoid monopoly pricing and maintain stability. In the case of CSDs, there is the possibility to increase interoperability further through T2S or even go a step further and transform T2S into an (issuer) CSD to thus promote competition. To address the problem of different legal systems limiting issuers to their respective national CSD, a push towards a 28th regime might be useful. Finally, and as in the case of CCPs, a greater role for ESMA regarding transparency (and regulation of) fees is needed. Finally, DLT solutions might be more suitable for trading and post-trading in smaller and less liquid markets, such as in SME equities and bond markets.
This ASC Insight is a second contribution of the ESRB’s Advisory Scientific Committee to the SIU debate, with a previous ASC Insight looking at reform opportunities for restructuring and insolvency in Europe.
24. August 2026
A scandal in Cambridge
Vacationing in the UK, I could not miss the scandal around Cambridge Professor Jason Arday, a sociologist at Cambridge. This scandal has now reached its sad climax with the passing of Jason Arday, presumably by suicide. The events of the past weeks have raised lots of emotions and fierce discussions, often forgetting that a human person was at the centre of them.
On the first look, another scandal of plagiarism in academia; not the first and not the last. However, there is a second and more important layer to it, as the appointment of Jason Arday in 2023 as Cambridge Professor was celebrated at the time as him being the youngest ever black professor at Cambridge. In addition, he was celebrated for having overcome significant problems in his childhood, including muteness and autism and having learned to read and write only at the age of 18. Given how proud Cambridge University was of his appointment (which came in the wake of the Black Lives Matter movement), initial doubts about his academic work were dismissed as being racist. Only after several other of his claims (including of visiting professor and fellowships at several other prominent universities) on his website turned out to be false, did the wave turn, resulting in Cambridge University opening an inquiry in early August and Arday resigning a day later.
Coming back to my first point - plagiarism is a serious academic malpractice. For his PhD thesis, Arday had interviewed a number of high school students. There seem to be indications, however, that the responses reported in the paper were lifted from another PhD thesis. The same applied to one of his papers; the journal where the article was published allowed the resubmission of a revised manuscript, with some of the interview responses (thus data points) taken out - a rather odd procedure; if this had happened in one of the journals that I used to edit, the paper would simply have been retracted! Different fields, different standards and procedures?
Making up datapoints in either qualitative or quantitative research is unfortunately, nothing new. The case I am most familiar with (as the person in question overlapped with me at Tilburg University) is Diederik Stapel, a former professor of social psychology, who pretended to run lab experiments with high school students in the Netherlands, but rather made up the data from the non-existing experiments, and wrote top publications with them. He was certainly considered one of if not THE top professor at Tilburg, until some of his students discovered his fraud and he was forced to resign in 2011 (and even gave up his PhD title voluntarily although there was no indication of fraud in his PhD thesis). The scandal certainly hit Tilburg University (and other academic institutions in the Netherlands were he had been active) quite hard, but also his field of social psychology. Other more recent cases include Francesca Gino at Harvard Business School, and MIT former PhD student Aidan Toner-Rodgers who faked data for a study on the effects of AI. So, at the first look another case of plagiarism and to claim that he was targeted because he was black is preposterous. People in academically high position are subject to more scrutiny! Calling the police on journalists who question your work is definitely not acceptable!
The case of academic misconduct by a Cambridge sociologist would not have led to newspaper headlines if it had not been for the assertion by many (both in the academic and non-academic world) that Arday was to be above any scrutiny and that any criticism of him would amount to racism. Only once some of his other claims about his life story (such as running 600 miles in 6 days and raising 5 million in charity work) turned out to be implausible if not wrong (and some of them were corrected by Arday himself subsequently) the sentiment turned against him. Rather than focusing on academic work and quality, the discussion turned into a political one, with one extreme seeing any attack on Arday as attack on the DEI movement and the other extreme seeing Arday as pure DEI hire who had won at the expense of other more qualified social scientists.
One thing is for sure, in my humble opinion: this scandal (and it is primarily a Cambridge University scandal!) has done enormous dis-service to the attempts for more diversity and inclusion! As Alex Edmans from LBS (and formerly my fellow-editor at Review of Finance) points out, what really matters is diversity of thought, a mix of different methodological approaches and conceptual frameworks- and yes, this can imply diversity in demographics, but not necessarily. And it certainly should not result in the lowering of academic standards.
Finally, should minorities be represented better in top academic positions? Yes, I emphatically subscribe to this! The question is how do we get there. Inclusion has to start at the basic level - primary and secondary education - my own experience as teaching assistant at the University of Virginia showed me that allowing minority students to enrol even though they do not fulfil the academic requirements does not help them and only leads to frustrations. In the UK, there is still a big gap between state and private schools when it comes to entering top universities subsequently. Similarly, economics has a gender imbalance at the Full Professor level, but we will not be able to remedy this by simply preferring female associate professors when it comes to promotion, rather the work has to start on the under- and post-graduate level. In sum, there are no shortcuts to a more diverse academic community, the problems are structural. As Kathleen Stock says in this longer interview (towards the end)- I paraphrase -, 'universities are not really there to do social justice or right social wrongs, but to train the minds of students turning them into clear thinkers and to make genuine contributions to knowledge.’ Again, we need diversity of thought and demographic diversity can be helpful with this. But this cannot lead to giving up basic academic standards.
On a final note, I had to smile when some defenders of Jason Arday were quoted as saying that the PhD thesis itself is not really that important. There is a point here - a PhD thesis is the 'master piece' evaluated at your university that allows you to enter the academic community. However, it is only subsequent academic publications that can help establish yourself in the academic profession. That is exactly how my own supervisor framed it at my PhD defence - 'Thorsten has done the work for his PhD, he has a job lined up and his thesis chapters have to go through the publication review process anyway’. What this does NOT mean is that the basic fundamentals of research (faking data and plagiarism) can be ignored in a PhD thesis; respecting the basic academic standards is a necessary condition for the academic degree of a PhD and entering the academic community.
In summary, a sad day for diversity and inclusion, an embarrassing day for Cambridge University and a wake-up call for academic integrity! Most importantly, a tragedy for Jason Arday and his family. Ultimately, he was used and abused by Cambridge University to satisfy their DEI needs. As Katy Barnett writes in this excellent blogpost (where she also discusses how to actually help disadvantaged minorities) about Jason Arday but directed at Cambridge University "You have done a disservice to him, to the academy, your other staff and students, your former graduates, and the broader society you claim to serve”.
16. August 2026
