Former Fed chairman Ben Bernanke has won the Nobel Prize in economics — along with economists Douglas Diamond and Philip Dybvig — for their research on bank runs and measures to prevent them.
Former Federal Reserve chairman Ben Bernanke was awarded the Nobel Prize in Economics Monday, along with economists Douglas Diamond and Philip Dybvig, for their research on bank runs and measures to prevent them.Bernanke, who's now at the Brookings Institution, was recognized for his research on the role of bank failures in deepening and prolonging the Great Depression in the 1930s.
Diamond, who's at the University of Chicago, and Dybvig, who's at Washington University in St. Louis, coauthored an influential paper on the critical role that banks play as financial middlemen, and how that role can be undermined by a mismatch in timing.Banks help to foster a more productive economy by channeling excess cash from depositors to borrowers in need of money to build homes and factories and businesses.
Trouble can arise when depositors want ready access to their cash on short notice, but the money is tied up in long-term assets or investments. "If a rumor starts that people are going to take out their money from the bank, then everyone has an incentive to rush to the bank to take out money in time and not come last in line," John Hassler of the Royal Swedish Academy of Sciences explained in announcing the prize."This can create failing banks."
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