Ben Bernanke, the former US Federal Reserve governor, has been awarded this year’s Nobel Prize in economics along with Douglas Diamond of the University of Chicago and Philip Dybvig of Washington University, for their work on the role of banks in the economy and financial crises.
The committee handing out the SKr10mn ($886,000) award — officially known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel — said on Monday that the laureates’ work, begun in the early 1980s, had “improved our ability to avoid both serious crises and expensive bailouts”. The trio will share the prize equally.
Bernanke, who oversaw the Fed’s response to the 2008 financial crisis and subsequent recession, was known for his analysis of the Great Depression of the 1930s — in which he showed that bank runs had been a decisive factor causing the crisis to be so deep and prolonged.
Diamond and Dybvig had meanwhile demonstrated how banks performed crucial social functions as intermediaries between savers who wanted instant access to their money, and borrowers who needed to make long-term investments.
They showed how this made banks vulnerable to rumours of their imminent collapse — and how this vulnerability could be addressed through deposit insurance schemes and by governments acting as a lender of last resort.
