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The 2022 Nobel Prize was awarded to the three US economists Ben Bernanke, Douglas W. Diamond and Philip H. Dybvig. The Academy of Sweden justified the award of the prestigious award to the three academics, emphasizing that their work on banks and financial crises “was fundamental to subsequent research that has improved our understanding of banks, banking regulation, crises. Banking and how to manage financial crises”.
Bernanke, at the Fed during the subprime crisis
The best-known of the three is undoubtedly Ben Bernanke, 69, who served as chairman of the Federal Reserve from 2006 to 2014. Bernanke is the man who faced the most massive financial crisis of the 21st century, that of subprime mortgages that erupted in 2007, in which he intervened first by cutting interest rates to zero to boost the real economy, and then a term of up to brought public attention, which was then well known to many, to “quantitative easing”, an ultra-accommodative monetary policy to pump liquidity into the system to trigger a recovery in consumption. Measures that, appointed by George W. Bush, earned him a second term in office from Barack Obama, although his critics sharply accused him of not being able to foresee and react to the dynamics that led to the outbreak of the crisis initial phase.
Ben’s studies of 1929
It should be noted that Bernanke received the Nobel Prize for his studies on another devastating economic crisis known as the “Great Depression,” triggered by “Black Tuesday,” the stock market crash of October 1929. According to the Swedish Academy jurors, Bernanke’s studies showed “how bank runs were a decisive factor in the deep and sustained development of the crisis”.
How the Diamond-Dybvig model works
Douglas W. Diamond, also 69, a professor at the University of Chicago, was recognized “for showing how banks play an important role in society.” As an intermediary between savers and borrowers, the jury emphasizes in their motivation that Diamond’s studies have shown that “banks are the most suitable institutions to assess the creditworthiness of borrowers and to ensure that credit is used for good investments will”.
In the mid-1980s, along with Philip H. Dybvig, 67, associate professor at Washington University in St. Louis, Academy of Sweden third prize winner, Diamond developed a set of theoretical models “that explain why banks exist, how their role in… of society makes them vulnerable to rumors of its imminent collapse and how society can reduce this vulnerability”. This is the famous Diamond Dybvig model. The two scientists also explained how the bank run and the panic among savers in the face of rumors of difficulties of their bank can trigger a dynamic in which the bank, emptied of the liquidity of its customers, can no longer support its activities and therefore risking bankruptcy more .