The Nobel Prize in Economic Sciences was awarded jointly to Ben S Bernanke, Douglas W Diamond, and Philip H Dybvig “for their research on banks and financial crises”.
The prize was announced on Monday by the Nobel Committee of the Royal Swedish Academy of Sciences in Stockholm. The committee said their research showed why it was vital to avoid bank collapses.
With their research in the early 1980s, the laureates laid the foundations for regulating financial markets and resolving financial crises, the panel said.
Bernanke, 68, a former chairman of the U.S. Federal Reserve who is now at The Brookings Institution in Washington, D.C., examined the Great Depression of the 1930s and showed how dangerous banks could be when savers withdrew their deposits in a panic.
Diamond, 68, based at the University of Chicago, and Dybvig, 67, who is at the University of Washington in St. Louis, showed how government deposit guarantees can prevent a financial crisis from spiraling.
“The laureates’ insights have improved our ability to avoid both serious crises and costly remedial measures,” said Tore Ellingsen, chairman of the Prize Committee in Economic Sciences.
Their research took on major real-world significance when investors panicked over the financial system in the fall of 2008. Bernanke, then the head of the Fed, teamed up with the Treasury Department to prop up the big banks and ease the lack of credit, the lifeblood of the economy.
The Nobel Prize carries a cash prize of 10 million Swedish kronor (almost $900,000) and will be presented on December 10. Unlike other prizes, the award for economics was not established in Alfred Nobel’s will in 1895, but by the Swedish central bank in his memory. The first winner was chosen in 1969.
Last year, half of the prize went to David Card for his research on how the minimum wage, immigration, and education affect the labor market. The second half was shared by Joshua Angrist and Guido Imbens for suggesting how to study problems that do not fit traditional scientific methods.
The week of the Nobel Prize announcement was kicked off on October 3 by Swedish scientist Svante Paabo, who received the prize in medicine for uncovering the secrets of Neanderthal DNA, which provided key insights into our immune system.