Ben S. Bernanke, a former chair of the U.S. Federal Reserve, and two economists from the United States, Douglas W. Diamond, and Philip H. Dybvig, have each been given this year’s Nobel Prize in economic sciences “for studies on banks and financial crises.”
The Royal Swedish Academy of Sciences in Stockholm hosted the Nobel committee on Monday when they revealed the winners.
The group claimed that their research had demonstrated “why avoiding bank collapses is crucial.”
According to the panel, the laureates’ early 1980s research laid the groundwork for regulating financial markets and handling financial crises.
The 68-year-old Bernanke, who is currently employed by The Brookings Institution in Washington, D.C., looked into the Great Depression of the 1930s and showed how risky bank runs, which occur when anxious savers withdraw their accounts, can be.
Diamond, 68, of the University of Chicago, and Dybvig, 67, of Washington University in St. Louis, demonstrated how deposit guarantees from the government might stop financial crises from getting out of control.
Tore Ellingsen, leader of the Committee for the Prize in Economic Sciences, stated that “the laureates’ insights have increased our ability to avert both catastrophic crises and expensive bailouts.”
When investors caused the fall 2008 financial panic, their study became enormous practical significance.
The Treasury Department and Bernanke, the former head of the Fed, collaborated to support big banks and ease a credit crunch, which is essential to the economy.
He put up unheard-of lending initiatives, reduced short-term interest rates to zero, and oversaw the Fed’s purchases of mortgage and Treasury securities. All of those actions strengthened large banks and reassured investors.
Additionally, they caused long-term interest rates to reach record lows and sparked harsh criticism of Bernanke from 2012 Republican presidential hopefuls, who said that the Fed was damaging the value of the dollar and increasing the likelihood of inflation in the future.
The Fed’s activities under Bernanke gave the central bank previously unheard-of levels of power. They failed to stop the worst and longest recession since the 1930s. In retrospect, however, the Fed’s actions were credited with saving the banking sector and preventing a new depression.
The 10 million Swedish kronor (almost $900,000) cash prize for the Nobel prizes will be awarded on December 10.
The Economics Prize was established by the Swedish Central Bank in Alfred Nobel’s honor, not by his will, which established the other prizes, in 1895. In 1969, the first winner was chosen.
David Card received half of the prize last year for his analysis of the effects of immigration, education, and the minimum wage on the labor market. Joshua Angrist and Guido Imbens each received half of the prize for their suggestions on how to examine problems that don’t readily lend themselves to conventional scientific approaches.
