THIS year’s Nobel Prize in economic sciences has been awarded to the former chair of the US Federal Reserve, Ben S. Bernanke, and two US-based economists, Douglas W. Diamond and Philip H. Dybvig, “for research on banks and financial crises.” The prize was announced Monday by the Nobel panel at the Royal Swedish Academy of Sciences in Stockholm. The committee said their work had shown in their research “why avoiding bank collapses is vital.”

 

With their research in the early 1980s, the laureates laid the foundations for regulating financial markets and dealing with financial crises, the panel said. Bernanke, 68, who was Fed chair from early 2006 to early 2014 and is now with the Brookings Institution in Washington, examined the Great Depression of the 1930s, showing the danger of bank runs — when panicked people withdraw their savings — and how bank collapses led to widespread economic devastation. 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, who is at Washington University in St. Louis, showed how Government guarantees on deposits can prevent a spiralling of financial crises. “The laureates’ insights have improved our ability to avoid both serious crises and expensive bailouts,” said Tore Ellingsen, chair of the Committee for the Prize in Economic Sciences.