Former Federal Reserve Chairman Ben Bernanke was part of a trio of academics who were awarded the Nobel Prize for Economics Monday for their research on banks and financial crises.
The award, officially known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was given to Bernanke, who is currently placed with the Brookings Institution in Washington, as well as University of Chicago professor Douglas Diamond and Washington University in St. Louis professor Philip Dybvig.
The trio were said to have "significantly improved our understanding of the role of banks in the economy, particularly during financial crises" with their research, that also isolated the reasons why "avoiding bank collapses is vital."
"Ben Bernanke analysed the Great Depression of the 1930s, the worst economic crisis in modern history," the "Their analyses have been of great practical importance in regulating financial markets and dealing with financial crises," the Royal Swedish Academy of Sciences said in a statement. "Among other things, he showed how bank runs were a decisive factor in the crisis becoming so deep and prolonged."
"When the banks collapsed, valuable information about borrowers was lost and could not be recreated quickly. Society’s ability to channel savings to productive investments was thus severely diminished," the statement added.
Diamond and Dybvig's work showed that government deposit insurance, as well as a role of 'lender of last resort', can prevent bank collapses and bridge the gap between saver's needs for cash access and borrower's needs for long-term financing.
Bernanke served as Federal Reserve Chairman from 2006 to 2014 and was instrumental in leading the U.S. response to the global financial crisis in 2008, initiating the central bank's first program of quantitative easing that ultimately led to the biggest expansion of its balance sheet -- and the supression of market interest rates -- on record.
