STOCKHOLM—Former U.S. Federal Reserve Chair Ben Bernanke won the Nobel Prize in economic sciences along with two other U.S.-based economists for their research into bank failures.
The Nobel panel at the Royal Swedish Academy of Sciences recognized Bernanke, Douglas W. Diamond, and Philip Dybvig on Monday for research that shows “why avoiding bank collapses is vital.”
Their findings in the early 1980s laid the foundations for regulating financial markets, the panel said.
“Financial crises and depressions are kind of the worst thing that can happen to the economy,” said John Hassler of the Committee for the Prize in Economic Sciences. “We need to have an understanding of the mechanism behind those and what to do about it. And the laureates this year provide that.”
Bernanke, 68, examined the Great Depression of the 1930s when he was a professor at Stanford University, showing the danger of bank runs—when panicked people withdraw their savings—and how bank collapses led to widespread economic devastation. He was Fed chair from early 2006 to early 2014 and is now with the Brookings Institution in Washington.
Before Bernanke, economists saw bank failures as a consequence, not a cause, of economic downturns.
Diamond, 68, based at the University of Chicago, and Dybvig, 67, based at Washington University in St. Louis, showed how government guarantees on deposits can prevent a spiraling of financial crises.
The economics award capped a week of Nobel Prize announcements in medicine, physics, chemistry, literature, and peace. They carry a cash award of 10 million Swedish kronor (nearly $900,000) and will be handed out on Dec. 10.
Unlike the other prizes, the economics award wasn’t established in Alfred Nobel’s will of 1895 but by the Swedish central bank in his memory. The first winner was selected in 1969.
