Former Fed Chief Bernanke Shares Nobel Prize In Economics For Work On Financial Crises

Topline

Former chair of the U.S. Federal Reserve Ben Bernanke was among a trio of U.S.-based economists awarded the 2022 Nobel Prize in economic sciences, the Royal Swedish Academy of Sciences announced on Monday, who were honored for their research on financial crises and the role of banks.

Ben Bernanke, former chair of the Federal Reserve, was one of three people honored with the Nobel in … [+] economics this year.

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Key Facts

Bernanke, who is now at the Brookings Institution in Washington, D.C., shared the prize with economists Douglas Diamond and Philip Dybvig, who are respectively based at the University of Chicago and Washington University in St. Louis.

The award committee said the trio “significantly improved our understanding of the role of banks in the economy, particularly during financial crises.”

Bernanke, who chaired the Federal Reserve between 2006 and 2014, was acknowledged for his analysis of the Great Depression, which the committee called the “worst economic crisis in modern history.”

His work highlighted how bank runs, rather than being a mere product of financial crisis, can actually deepen and prolong the crisis, the committee said.

Diamond and Dybvig were noted for their work showing that banks, through their intermediate role between borrowers and savers, are vulnerable to rumors of collapse and subsequent runs.

Diamond was also credited for his work documenting how banks compile socially valuable information about borrowers, which is lost when they collapse.

Tangent

The research credited in the 2022 prize has been of substantial real-world importance in recent history, particularly during the financial crash of 2008. Bernanke, at the time leading the Fed, took unprecedented steps to intervene in the financial system and prop up major lenders, something that earned him heavy criticism. While his policies were unable to stave off the severe recession that followed, many credit Bernanke with saving the world from a second Great Depression.

Big Number

$900,000. That’s roughly how much is awarded to this year’s prize winners. The prize money will be divided among the recipients.

Surprising Fact

The prize for economics, while often described as a Nobel Prize, stands apart from the other five awards. Unlike Nobel Prizes in literature, peace, physics, chemistry and physiology or medicine, economics was not provided for in Alfred Nobel’s will in 1895. It was established by the Swedish central bank in 1968—and first awarded in 1969—in the memory of Nobel. More formally, it is known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Crucial Quote

“The laureates’ insights have improved our ability to avoid both serious crises and expensive bailouts,” said Tore Ellingsen, who is Chair of the Committee for the Prize in Economic Sciences.