Former Federal Reserve Chairman Ben Bernanke and two other prominent economists who have done research on banking and financial crises won the Nobel Prize in Economic Sciences.
The honor was announced on Monday. Douglas Diamond of the University of Chicago and Philip Dybvig of Washington University in St. Louis were the other two economists recognized by the Royal Swedish Academy of Sciences in Stockholm.
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The Royal Academy said the three economists’ research helped show “why avoiding bank collapses is vital,” the academy said. The research for which the three economists were given the award was published in the 1980s and detailed how banks relate to the economy and can cause financial crises like the one experienced in 2008.
“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. “These things can happen again. And 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 briefly led former President George W. Bush’s Council of Economic Advisers. He was then the Fed chairman from 2006 to 2014, presiding over the global financial crisis and the most crushing recession since the Great Depression. He helped engineer the bailouts of the financial sector and led the Fed as it slashed interest rates to near zero and commissioned massive purchases of government bonds in a then-unprecedented effort to prop up the U.S. economy.
Current Fed Chairman Jerome Powell took a page out of Bernanke’s book in 2020, when he dropped rates as the pandemic took hold and menaced the prospects of another massive economic upheaval. Those efforts have since backfired, as inflation threatens yet another recession.
Bernanke said earlier this year that the central bank waited too long in addressing inflation.
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“The question is why did they delay that? … Why did they delay their response? I think in retrospect, yes, it was a mistake,” he told CNBC. “And I think they agree it was a mistake.”
Dybvig and Diamond were awarded for their research examining the relationship between banks and savers and borrowers.
