The 2022 Nobel Prize in Economics was awarded to Ben Bernanke (former head of the Federal Reserve), Douglas W. Diamond and Philip H. Dybvig for investigating “banks and financial crises”reported the Royal Swedish Academy of Sciences.
This year’s winners “have greatly improved our understanding of the role of banks in the economy, particularly during financial crises, as well as how to regulate financial markets,” the academy said.
This year’s Nobel Prizes are at the root of banking research in the early 1980s. “Their analyzes were great practical importance in the regulation of financial markets and deal with financial crises, “added the Swedish institution.
Bernanke in particular “analyzed the Great Depression of the 1930s, the worst economic crisis in modern history” and showed how banks were “a decisive factor in making the crisis so deep and prolonged”.
“When the banks collapsed, valuable information about borrowers was lost and could not be quickly recreated. The company’s ability to channel savings into productive investment has been severely curtailed.The academy commented on Bernanke’s research.
Furthermore, his analysis showed which factors were important in the decline in gross domestic product and found that “factors directly related to bank failure accounted for most of the recession” which continued thereafter.
As for Diamond and Dybvig, the prize is awarded because “they have developed theoretical models that explain why banks exist, how their role in society makes them vulnerable to rumors of their impending collapse and how society can reduce this vulnerability.”
both presented a solution to banking vulnerability, in the form of government deposit insurance. “When depositors know that the government has guaranteed their money, they no longer need to rush to the bank as soon as rumors of bank failure begin.”
On the other hand, estimates the Swedish academy, Diamond also showed “how banks play an important social role. As intermediaries between savers and borrowers, banks are better equipped to assess the creditworthiness of borrowers and ensure that loans are used for good investments.
The award is the latest of the Nobel Prizes announced, after having announced last week the winners in the categories of Medicine, Physics, Chemistry, Literature and Peace and will be awarded, like the others, on 10 December.
(EFE)
Source: Clarin
