Three economists won the Nobel Prize for research on the banking crisis, one of them won the Chinese Government Friendship Award

At 5:45 pm on October 10th, Beijing time, the Royal Swedish Academy of Sciences decided to award the 2022 Riksbank Memorial Alfred Nobel Prize in Economics to Ben Bernanke, Douglas Diamond and Philip Debvig , for their research on banking and financial crises. The three economists will share the 10 million kronor prize equally, each getting a third. The Beijing News Shell Finance gives you a quick look at the new Nobel Laureates in Economics in 2022. Where do they all come from? What are the achievements?

Discoveries by three new Nobel Laureates in Economics have improved the way society responds to financial crises. Nobel’s official website wrote in the award speech that this year’s economics laureates, Ben Bernanke, Douglas Diamond and Philip Debvig, have significantly improved our understanding of the role of banks in the economy. A key finding: why avoiding bank failures is critical.

Ben Bernanke has published many articles on a variety of economic issues, including monetary policy, macroeconomics, and economic history; Douglas Diamond specializes in financial intermediaries, financial crises, and liquidity; in his spare time, Philip Day Bouvig also has a wealth of hobbies. In his spare time, he likes to play, compose, cook, play Tai Chi and practice weights.

The Beijing News Shell Finance reporter found that the award-winning Professor Philip Debvig had long served in Chinese academia and was employed as the dean of the Financial Research Institute of Southwestern University of Finance and Economics from 2010 to 2021. During his tenure, he successively received honorary titles such as Changjiang Scholar Chair Professor of the Ministry of Education, Chinese Government Friendship Award and Chengdu Municipal Government Friendship Award.

1980s study “How to Avoid Bank Failure”

What were the contributions of the three economists?

“Why Avoid Bank Failure?” is a study and analysis by three economists, Ben Bernanke, Douglas Diamond, and Philip Debvig in the early 1980s, in regulating financial markets and responding to financial crises has important practical significance. Their findings have improved the way society responds to financial crises, mentioned in the 2022 Nobel Prize in Economics speech.

Nobel’s official website explains the award-winning work of the three economists: Modern banking research sheds light on why we have banks, how to make them less vulnerable in crises, and how bank failures can exacerbate financial crises. For the economy to work, savings must be invested. Here’s a conflict, however: savers want immediate access to their money in the event of an unexpected expense, while businesses and homeowners need to know they won’t be forced to pay off their loans prematurely. In their theory, Diamond and Debwig show how banks can provide the best solution to this problem. By acting as an intermediary that accepts deposits from many savers, banks can allow savers to get their money when they want, while also providing long-term loans to borrowers.

However, their analysis also showed how the combination of these two activities made the bank vulnerable to rumors of its impending collapse. If a large number of depositors go to the bank to withdraw money at the same time, a bank run will occur and the bank will fail. These dangerous dynamics can be prevented by governments providing deposit insurance and acting as lender of last resort for banks.

Diamond shows how banks perform another socially important function. As an intermediary between many depositors and borrowers, banks are better positioned to assess the creditworthiness of borrowers and ensure that loans are for sound investments.

Ben Bernanke analyzes the Great Depression of the 1930s, the worst economic crisis in modern history. In addition to this, he showed that the bank run was the decisive factor that made the crisis so deep and persistent. When banks fail, important information about borrowers is lost and cannot be quickly rebuilt. As a result, society’s ability to use savings for productive investment is severely diminished.