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
