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"Improved our ability to avoid serious crises": Nobel Prize for the former chairman of the Fed and two researchers at the academy | Israel Hayom

2022-10-10T10:46:29.143Z


The former chairman of the Federal Reserve, the American Jew, Ben Bernanke won the Nobel Prize together with the researchers Douglas Diamond and Philip Dibwig for their research on the banks • Bernanke analyzed the worst financial crisis in modern history


"Thanks to the research on the banks": The Nobel Prize in Economics was awarded to the former head of the US Federal Reserve Bank, Ben Bernanke, and to two researchers in the academy, Douglas Diamond, the economist from the University of Chicago, and Philip Dybvig, from Washington University in St. Louis.

"Modern banking research clarifies why we have banks, how to make them more vulnerable in times of crisis and why the collapse of banks worsens financial crises," wrote the members of the award committee, "the foundations for the research were laid by Bernanke, Diamond and Divvig in the early 1980s. The analyzes they conducted carried enormous practical significance in all concerning the regulation of financial markets and dealing with financial crises".

BREAKING NEWS:


The Royal Swedish Academy of Sciences has decided to award the 2022 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Ben S. Bernanke, Douglas W. Diamond and Philip H. Dybvig “for research on banks and financial crises. ”#NobelPrize pic.twitter.com/cW0sLFh2sj

— The Nobel Prize (@NobelPrize) October 10, 2022

"In order for the economy to function, savings need to be channeled into investments. However, this creates a conflict: savers want immediate access to their money in cases of unusual expenses, while businesses and homeowners need to know that they will not have to pay off their loans sooner than expected. In their theory, Diamond and Divvig show how banks offer the optimal solution to the problem: in their role as intermediaries who receive deposits from many customers, the banks can have access to their money at any time and at the same time offer long-term loans to borrowers."

According to the award committee, the study showed that a combination of the two things - both immediate access and long-term loans - makes the banks vulnerable to rumors of their immediate collapse.

"If a large number of customers decide to withdraw money at once, the rumor may come true - and the bank will collapse. This dangerous dynamic is avoided when the state provides a guarantee to the banks and acts as a lender for them."

Diamond, according to the award committee, showed how banks perform another social function.

As argued by many savers and borrowers, the banks are more qualified and prepared to assess the repayment capacity of the borrowers and ensure that the loans are used for proper investments.



Ben Bernanke analyzed the worst economic crisis in modern history: the Great Depression of the 1930s.

Among other things, Bernanke presented how the way the banks were managed was a decisive factor in turning the crisis into a deep and prolonged one.

"When the banks collapsed, valuable information about the borrowers disappeared and was not quickly recoverable. The company's ability to channel the savings into profitable investments was severely damaged."

"The winners of the award have improved our ability to avoid serious crises and the need to provide banks with expensive lifelines," said Tore Ellingsen, chairman of the award committee.

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Source: israelhayom

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