Ben Bernanke Shares Nobel Economics Prize With 2 U.S. Profs

Former Federal Reserve Chair Ben Bernanke, Douglas Diamond, and Philip Dybvig were awarded the Nobel Prize in economics on Monday for their work on banks and financial crises, Julia Horowitz reported for CNN Business.

Photo Insert: The three US economists were recognized for their work in the early 1980s which provided the foundation for our modern understanding of why banks are needed, their chief vulnerabilities, and how their collapse can fuel financial meltdowns.

The three US economists were recognized by the Royal Swedish Academy of Sciences for their work in the early 1980s, which the institute said provided the foundation for our modern understanding of why banks are needed, their chief vulnerabilities, and how their collapse can fuel financial meltdowns.

Bernanke, who led the US central bank during the 2008 global financial crisis, received the award for his research on the Great Depression. His work showed that bank runs were a decisive reason the crisis became so severe and entrenched.

“People had seen that banks fail, but it was more thought [of] as a consequence of the crisis rather than [a] cause of the crisis,” the economist John Hassler, who serves on the Nobel committee, said at a press conference. “Now the views of Bernanke have become the conventional wisdom.”

Bernanke is now a distinguished senior fellow at the Brookings Institution, a high-profile think tank. Diamond is a professor at the University of Chicago, while Dybvig is at Washington University in St. Louis.

Diamond and Dybvig’s research showed that banks help resolve tensions between borrowers and savers, whose goals can diverge. Borrowers want to know they won’t have to repay their debts too soon, while savers desire quick access to funds in case of an emergency.

While this intermediary role is important, it also makes lenders vulnerable to runs if rumors about their financial position start to circulate, Diamond and Dybvig found.

Answering questions at the press conference on Monday, Diamond noted that the rapid run-up in interest rates around the world was causing market instability, pointing to recent tumult in the United Kingdom. But he believes the system is more resilient than it used to be because of hard lessons gleaned from the 2008 crash.

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