The Nobel Prize in Economics was awarded to former Federal Reserve Chairman Ben Bernanke and economists Douglas Diamond and Philip Dibwig "for their research on banks and financial crises." This is stated on the website of the Nobel Prize.
“This year's Economics Laureates Ben Bernanke, Douglas Diamond and Philip Dibwig have significantly improved our understanding of the role of banks in the economy, especially during financial crises. An important takeaway from their study is why it is vital to avoid bank failures,” the Nobel Committee said in a statement.
Economists were recognized by the Swedish Academy for their studies of the period of the 1980s, which proved the necessity and importance of the banking system for the financial stability of the state. Their work reflected the conclusion that a strong banking system is a necessary condition for mitigating the effects of financial crises. Diamond and Dybvig demonstrate in their work that banks are an ideal link between depositors and borrowers, they create the necessary balance for the successful functioning of the economy, redirecting the financial flows of savings to investments.
“The consideration of the laureates has helped us avoid both major crises and costly bailouts,” says Tore Ellingsen, chairman of the economics awards committee.
Economists also proved that the collapse of the banking system leads to much more terrible economic consequences and a more protracted crisis, since without banks the financial system of the state degrades, and normal monetary relations between borrowers and savers are restored much longer. These conclusions made it possible to supplement modern financial systems with state intervention – the creation of deposit insurance systems, which made it possible to reduce risks for the banking and, as a result, the entire financial system of the state as a whole. It was Bernanke who wrote about the need for state insurance programs, who in his works insisted on maintaining the viability of banks in crises and helping them from the state.
Ben Bernanke headed the Federal Reserve System (Fed) from 2006 to 2014. It was under him that the American economy faced a mortgage crisis, which led to the collapse of the American stock market, the financial system and numerous bankruptcies. Bernanke found a way out of the situation in lowering rates, which, according to his idea, was to provoke GDP growth through cheap money. Moreover, Bernanke was one of the first central bankers to resort to so-called "quantitative easing" – the direct injection of money into the economy through the issuance of bonds. These methods of dealing with crises formed the basis of anti-crisis plans during the corona crisis. However, now economists disagree in their assessments of these actions, since excessive emission and low rates led to record inflation and caused a new wave of crisis, which developed countries faced already at the end of 2021 and continue to struggle to this day.