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Former Federal Reserve Chairman Ben Bernanke was among a trio of US-based economists who have been awarded the 2022 Nobel Prize in Economic Sciences, the Royal Swedish Academy of Sciences, honored for their research on financial crises and their role, announced on Monday became banks.

Important facts

Bernanke, who now works at the Brookings Institution in Washington, DC, shared the award with economists Douglas Diamond and Philip Dybvig, who work at the University of Chicago and Washington University in St. Louis, respectively.

The awards committee said the trio “significantly enhanced our understanding of the role of banks in the economy, particularly during financial crises.”

Bernanke, who served as Federal Reserve Chairman from 2006 to 2014, was recognized for his analysis of the Great Depression, which the committee called “the worst economic crisis in modern history.”

His work clarified how bank runs, rather than being a mere product of the financial crisis, can actually deepen and prolong the crisis, the committee said.

Diamond and Dybvig were known for their work showing that banks’ intermediary role between borrowers and savers makes them vulnerable to rumors of collapse and subsequent runs.

Diamond has also been credited for his work documenting how banks collate socially valuable information about borrowers that is lost in a collapse.

tangent

The research recognized by the 2022 award was of significant real-world importance in recent history, particularly during the 2008 financial crash. Bernanke, who ran the Fed at the time, took unprecedented steps to intervene in the financial system and prop up large lenders brought him severe criticism. While his policies failed to avert the severe recession that followed, many credit Bernanke with saving the world from a second Great Depression.

Big number

$900,000. This is roughly how much will be awarded to this year’s prizewinners. The prize money will be divided among the recipients.

Surprising fact

The business prize, often referred to as the Nobel Prize, stands out from the other five awards. Unlike Nobel prizes for literature, peace, physics, chemistry, physiology or medicine, economics was not included in Alfred Nobel’s 1895 will. They were established by the Swedish Central Bank in 1968 – and first awarded in 1969 – in memory of Nobel. It is more formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Crucial quote

“The award winners’ insights have improved our ability to avoid both severe crises and expensive bailouts,” said Tore Ellingsen, Chair of the Economics Award Committee.

Further reading

Lunch with the FT: Ben Bernanke (FT)

Bernanke feared a second Great Depression (WSJ)

Ben Bernanke relaxes in his post-crisis years (WSJ)