Three American economists, whose work is credited with helping avert financial catastrophes, were awarded the Nobel Prize in economics October 10.
The economists — Ben Bernanke, Douglas Diamond and Philip Dybvig — conducted research in the 1980s that contributed to greater understanding of banks’ role in the economy.
Bernanke’s analysis of the 1930s-era Great Depression showed how supporting banks in recessions can prevent a deep, prolonged economic downturn. Diamond and Dybvig’s research laid a foundation for the financial regulation needed for economic stability.
The Royal Swedish Academy of Sciences, which determines Nobel Prize winners, says the economists’ work has shaped how countries respond to economic crises.
“The actions taken by central banks and financial regulators around the world in confronting two recent major crises — the Great Recession and the economic downturn that was generated by the COVID-19 pandemic — were in large part motivated by the laureates’ research,” the academy said in announcing the awards.
This year’s laureates in economic sciences, Ben Bernanke, Douglas Diamond and Philip Dybvig, have significantly improved our understanding of the role of banks in the economy, particularly during financial crises, as well as how to regulate financial markets. #NobelPrize pic.twitter.com/5Z2ra3iHAd
— The Nobel Prize (@NobelPrize) October 10, 2022
As Federal Reserve chairman from 2006 to 2014, Bernanke put his research into practice, playing a key role in the U.S. government’s efforts to prevent the 2008 financial crisis from turning into a depression. Those efforts included supporting banks.
Bernanke told an October 10 ceremony at the Brookings Institution, where he is now a senior fellow, that in 2008 he was “determined to do everything I could” to prevent a financial system meltdown that he believed would sink the broader economy.
The work for which Ben Bernanke, Douglas Diamond and Philip Dybvig are being recognised has been crucial to subsequent research that has enhanced our understanding of banks, bank regulation, banking crises and how financial crises should be managed.#NobelPrize pic.twitter.com/4drJwZ0yF9
— The Nobel Prize (@NobelPrize) October 10, 2022
The academy says research by Diamond, of the University of Chicago, and Dybvig, of Washington University in St. Louis, provided insights that “provide the foundation for modern bank regulation.” Along with Bernanke’s research, Diamond and Dybvig’s work helped countries address financial downturns in 2008 and during the COVID-19 pandemic.
“The laureates’ insights have played an important role in ensuring these latter crises did not develop into new depressions with devastating consequences for society,” the academy said.
