Nobel Economics Prize goes to US trio, including former Fed chief Bernanke

A US trio on Monday won the Nobel Economics Prize for research on banking's role in the economy, especially on the importance of avoiding collapses during financial crises.

Ben Bernanke, Douglas Diamond and Philip Dybvig. © Nobel Prize Outreach

Ben Bernanke, the former head of the US Federal Reserve, together with Douglas Diamond and Philip Dybvig were honoured for having "significantly improved our understanding of the role of banks in the economy, particularly during financial crises, as well as how to regulate financial markets," the jury said.

Bernanke, the chair of the US Federal Reserve between 2006 and 2014, was highlighted for his analysis of "the worst economic crisis in modern history" -- the Great Depression in the 1930s.

Diamond, a professor at the University of Chicago born in 1953, and Dybvig, a professor at Washington University in St. Louis, were in turn honoured for showing how "banks offer an optimal solution" for channelling savings to investments by acting as an intermediary.

How to beat the bank run

The pair also showed how these institutions were vulnerable to so-called bank runs.

"If a large number of savers simultaneously rush to the bank to withdraw their money, the rumour may become a self-fulfilling prophecy -- a bank run occurs and the bank collapses," the Nobel Committee said.

The committee added that this dangerous dynamic can be avoided by governments providing deposit insurance and giving banks a life-line by becoming a lender of last resort.

"The laureates' insights have improved our ability to avoid both serious crises and expensive bailouts," Tore Ellingsen, chair of the Committee for the Prize in Economic Sciences, said.

"In a nutshell, the theory says that banks can be tremendously useful but they are only guaranteed to be stable if they are properly regulated", he added.

Not an original Nobel 

Of all the Nobels, the economics prize has the fewest number of female winners, with just two women laureates since it was first awarded in 1969 -- Elinor Ostrom in 2009 and Esther Duflo in 2019.

The economics prize, set up by the Swedish central bank, was the only award absent from the original five created by scientist Alfred Nobel, sometimes earning it the moniker of "false Nobel".

But like the other prizes it comes with a medal and an award sum of 10 million Swedish kronor (around 900,000 euro).