Nobel Prize in Economics 2022 to researchers of “banks and financial crises”

First modification: 10/10/2022 – 14:34

Ben Bernanke, Douglas Diamond and Philip Dybvig are the winners of the 2022 Nobel Prize in Economics. The decision of the Swedish Academy of Sciences is due to the fact that Americans laid the groundwork for managing global crises such as the Great Recession of 2008 and the recent Covid-19 pandemic.

“The actions taken by central banks and financial regulators around the world to confront two major recent crises, the Great Recession and the economic downturn generated by the Covid-19 pandemic, were largely motivated by the research of the laureates “, said the institution this October 10.

The investigative work of economists began in the 1980s and includes topics such as the regulation of the financial sector and support for failing banks, two measures that can help prevent even deeper economic crises.

“An important finding in their research is why avoiding bank collapses is vital,” the Academy added. “His analyzes of him have been of great practical importance in regulating financial markets and dealing with financial crises.”

The practical contributions of Bernanke, Diamond and Dybvig

The contribution of Bernanke, former president of the Federal Reserve of the United States, consisted of analyzing “the Great Depression of the 1930s, the worst economic crisis in modern history” and demonstrating how banks were “a decisive factor in making the crisis became so deep and prolonged.

His analysis allowed him to determine what were the most important factors that led to the drop in Gross Domestic Product while discovering that “factors that were directly related to failing banks accounted for the largest part of the recession.”

For their part, Diamond and Dybvig “developed theoretical models that explain why banks exist, how their role in society makes them vulnerable to rumors of imminent collapse, and how society can lessen this vulnerability.”

Both devised a solution to banking vulnerability, in the form of government deposit insurance. “When depositors know that the state has guaranteed their money, they no longer need to run to the bank as soon as rumors of a bank failure begin,” the academy explained.

The economics prize is not one of the original five prizes that were created in Alfred Nobel’s 1895 will. The award was established in 1969 by the Central Bank of Sweden and its formal name is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

With EFE and Reuters