Three researchers from US universities, including former chairman of the US Federal Reserve Ben Bernanke, are the winners of this year’s Nobel Prize in Economics, for their contribution to finding ways to avoid and manage crises in the financial system, such as the occurred in 2008.
The prize, officially designated as the Bank of Sweden Prize for Economic Sciences in Memory of Alfred Nobel, was awarded this Monday to Ben Bernanke, Douglas Diamond and Philip Dybvig. “[Os laureados] have significantly improved our understanding of the role of banks in the economy, particularly during financial crises, as well as how to regulate financial markets. Swedish Academy .
Ben Bernanke was the chairman of the US Federal Reserve when, following the collapse of the Lehman Brothers investment bank in 2008, the international financial system entered a major crisis.
However, it was not for the role he played during this crisis that the American economist received the Nobel Prize this Monday. Before taking up his duties at the Fed, Bernanke devoted himself, as an academic, to the investigation of financial crises such as the Great Depression of the 1930s. accompanies the announcement of the prize.
“Among other things, it showed how the bank runs were a decisive factor in making this crisis so deep and prolonged,” says the note about Bernanke, who is now a fellow at The Brookings Institution.
When Ben Bernanke analyzed what had happened during the Great Depression of the 1930s, the most common idea among economists was that the problem had essentially been that the central bank had not injected enough liquidity into the economy. Bernanke agreed with that analysis, but argued that the explanation for the extraordinary size and duration of the crisis lay in another factor: the successive bank failures that prevented the financial system from playing, for a long period of time, its role of transforming savings of economic agents in investment. And instead of considering that it was the economic crisis that led to the failure of banks, he argued that the bankruptcies were the cause for the crisis to be so deep and prolonged.
“Using historical sources and scientific methods, Bernanke’s analysis showed which factors were important in the fall in GDP. And he concluded that factors directly linked to bank failures contributed the lion’s share to the recession,” the academy members say.
Also in the 1980s, Douglas Diamond of the University of Chicago and Philip Dybvig of Washington University in St. Louis, the other Nobel laureates, dedicated themselves to studying ways to avoid that, in times of economic crisis, there is a wave of bank failures that make the problems in the economy even more serious.
The two economists, says the academy, “have developed theoretical models that explain why banks exist, how their roles in society make them vulnerable to rumors about their collapse and how society can minimize these vulnerabilities”.
One of the solutions presented by Douglas Diamond and Philip Dybvig is now being used in practice in a large number of countries, including Portugal: the introduction by the State of mechanisms to guarantee bank deposits, which make savers, confident that up to a certain amount the State protects their money, feel less urgency to withdraw their deposits the moment they hear rumors of their bank failure.
