Nobel Prize in Economics to Bernanke-Diamond-Dybvig, trio of specialists in the “bank run” – Liberation

We were expecting a woman, it’s a trio of male economists who have won the Nobel Prize for their work on the role of banks in the advent of great financial crises. Ben Bernanke notably led the US Federal Reserve in the midst of the 2008 crisis.

Predictions and bookmakers focused on an economist, in this case the American Claudia Goldin, professor at Harvard and specialist in the place of women and gender inequalities in the labor market … The Nobel Prize for Economics 2022 has finally been awarded. three men, three Americans, for their work on a completely different topic, the role of banks in the advent of financial crises as resounding as that of 2008. Ben Bernanke, the former president of the central bank of the United States and his two compatriots Douglas W. Diamond and Philip Dybvig won the latest award awarded this year by the Royal Swedish Academy of Sciences. Indifferent to bets, buzz phenomena or debates that run through society, the institute has always favored academic research and explained its choice with the fact that this trio of economists “It has greatly improved our understanding of the role of banks in our economy, particularly during financial crises, as well as how to regulate financial markets”.

Front row seats

The best known of the three is obviously Ben Bernanke, who led the United States Federal Reserve (the “Fed”) from 2006 to 2014, where he experienced firsthand the famous 2008 “bank run” that led to the bankruptcy of Lehman Brothers and a liquidity and solvency crisis unprecedented since the war and affecting financial institutions and large states. The jury did not refer to his action as head of the Fed in the grounds for his award. But at 68, the Harvard and MIT graduate American economist, student of another Nobel laureate in economics, Peter Diamond (2010), is perhaps as rewarded for responding to the crisis as efficiently as for his past work on the Great Depression of the 1930s.

After teaching specifically in Princeton’s economics department, then chaired, Bernanke joined the Fed’s board of directors in 2002 and was later appointed head of the Council of Economic Advisers to the White House. George Bush then appointed him head of the Federal Reserve in 2005, a position he held for nearly ten years until January 31, 2014. It was in this chair as a great financier that he saw the beginning of the so-called “subprime” crisis that is underway. hitting the subprime mortgage industry hard, not to mention “junk bonds” or junk bonds. In his memoirs of him, he admits that he didn’t realize quickly enough the severity of the financial crisis that would follow. But the magazine Timewho will elect him “Personality of the Year 2009,” believes he has saved the United States from financial disaster by injecting hundreds of billions of dollars into the economy and cleaning up the toxic loan market.

“Self-fulfilling prophecy”

Douglas Diamond, 69, a professor of Finance at the University of Chicago, and Philip Dybvig, 67, a professor at Washington University’s (St-Louis) Olin Business School, are not excluded: they have developed theoretical models that show why banks exist. and because their role in society makes them vulnerable to rumors of their impending collapse. Vulnerability leading to the famous phenomenon of rush to the counters which sees savers massively and simultaneously withdraw their savings from banks in every major crisis, helping to fuel a liquidity crisis and further accelerate the economic and financial shock. This work led in particular to the “Diamond-Dybvig model” of self-fulfilling bank runs: “If a large number of savers rush to their banks at the same time to withdraw money, the rumor can become a self-fulfilling prophecy”underlines the Nobel jury. “An important discovery” of the three Nobel laureates “it was to show why avoiding bank collapse is essential”, stressed the Swedish Academy of Sciences committee responsible for awarding the prize. With the resounding bankruptcy of the Lehman Brothers bank and the bailout of the insurer AIG, the conviction that the economic circles still had the reassuring concept of “too big to fail” (“too big to fail”) has definitely collapsed as Bernanke, Diamond and Dybvig had anticipated a few years earlier.

Only for not having been foreseen in the will of Alfred Nobel, the prize for the economy created by the Swedish central bank “in memory” of the inventor was added in 1969 to the five traditional awards (medicine, physics, chemistry, literature and peace), earning the nickname of “false Nobel” among his detractors. American Elinor Ostrom (2009) and French-American Esther Duflo (2019) are the only women to have won the award so far. Last year, American-Canadian David Card, American-Israeli Joshua Angrist, and American-Dutch Guido Imbe were crowned for their work in experimental economics.

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