this Nobel Prize Economy 2022 fell on the former head of the US Federal Reserve, i am bernankein addition to teachers Douglas W Diamond Y Philip H. Dybvig for their work On the banking system and the financial crisis. The former currently works at the Brookings Institution in Washington; Diamond at the University of Chicago and Dybvig, St. at the University of Washington in St. Louis.
The award winners have “significantly improved our understanding of this issue. the role of banks in the economyespecially during financial crises. An important finding in his research, Why is it vital to avoid bank crashes?“, according to the Swedish Academy committee that selected them.
The Academy said in a statement that “modern banking research studies why we have banks, how we can make them less vulnerable in crises, and how How bank collapse exacerbates financial crises“. Three award winners established The foundations of this research in the early 1980s. Their analysis has been of great practical importance in regulating financial markets and dealing with financial crises.
Savings, investments and loans
In an economy, savings must be channeled into investments for the economy to function. But there’s a paradox: While savers want instant access to their money in unexpected situations, businesses and homeowners should know. they will not have to pay off their loans early.
Diamond and Dybvig show in their theory how banks offer an optimal solution to this problem. by acting as intermediaries banks that accept deposits from many savers, It offers long-term loans to borrowers, while depositors have access to their money whenever they want..
But his analysis also showed how the combination of these two activities makes banks vulnerable to risk. Rumors about the imminent collapse. If a large number of savers simultaneously rush to the bank to withdraw their money, the rumor can turn into a self-fulfilling prophecy: the deposits will run out and the bank will collapse. These dangerous dynamics It can be avoided if the government provides deposit insurance and acts as a lender of last resort. for banks.
tank leaks
Diamond showed how banks perform another socially important function. They are better equipped to act as intermediaries between many savers and borrowers. Assessing the creditworthiness of borrowers and ensuring that loans are used for sound investments.
Bernanke analyzed great depression The worst economic crisis of the 1930s, in modern history. Among other things, it showed me how I am.Deposit leaks were a decisive factor in the deepening and prolongation of the crisis.. When banks collapsed, valuable information about borrowers was lost and could not be quickly reconstructed. Regarding the winners’ work, the Nobel jury noted that society’s ability to channel savings into productive investments was therefore severely reduced.
“Information of the winners enhanced our ability to prevent serious crises and costly rescuessaid Tore Ellingsen, chair of the Nobel Prize in Economics committee.
Bernanke was born in Augusta Augusta, Georgia, USA in 1953. He holds a PhD from the Massachusetts Institute of Technology (MIT), among other degrees. He was chairman of the Federal Reserve from 2006 to 2014. He currently works at the Brokings Institute in Washington.
Born in 1953, Diamond is a PhD from Yale University and Professor of Finance at the University of Chicago. Born in 1955, Dybvig is also a PhD student at Yale University. He is Professor of Finance at the University of Washington in St. Louis, Missouri.
Last year, the award went to David Card, Joshua Angrist and Guido Imbens for their analysis of the labor market. Specifically, “for his empirical contribution to the economic analysis of employment. The Nobel Prize in Economics was established in 1968.