Context: The Royal Swedish Academy of Sciences has decided to award the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2022 to Ben Bernanke, Douglas Diamond and Philip Dybvig  “for research on banks and financial crises.”

• The 2021 Nobel Prize in Economic Sciences has been awarded in one half to Canadian-born David Card and the other half jointly to Israeli-American Joshua D Angrist and Dutch-American Guido W Imbens.

• David Card has been awarded for his empirical contributions to labour economics. Joshua D Angrist and Guido W Imbens won the award “for their methodological contributions to the analysis of causal relationships.”

Key Points

• The work for which Bernanke, Diamond and Dybvig are being recognised has been crucial to subsequent research that has enhanced our understanding of banks, bank regulation, banking crises and how financial crises should be managed.

• The research presented by this year’s laureates in economic sciences reduces the risk of financial crises developing into long-term depressions with severe consequences for society, which is of the greatest benefit to us all.

Contributions

Diamond and Dybvig offered a solution to the banking crisis. Banks, by acting as intermediaries that accept deposits from many savers, can allow depositors to access their money when they wish, while also offering longterm loans to borrowers. 

• Bank runs can be prevented if the government provides deposit insurance and acts as a lender of last resort to banks.

Where as Ben Bernanke analysed the Great Depression of the 1930s, the worst economic crisis in modern history. 

• Among other things, he showed how bank runs were a decisive factor in the crisis becoming so deep and prolonged.

Additional Facts

• Unlike the other prizes, the economics award wasn't established in Alfred Nobel's will of 1895 but by the Swedish central bank in his memory. The first winner was selected in 1969.

• The Royal Swedish Academy of Sciences selects the winners from a list of candidates recommended by the Economic Sciences Prize Committee.

• It has been awarded 54 times to 92 laureates between 1969 and 2022.