This year's Nobel Prize in economic sciences has been awarded to former U.S. Federal Reserve Chair Ben Bernanke and two other U.S.-based economists. Bernanke, Douglas W. Diamond and Philip H. Dybvig were recognized Monday for their research into the fallout from bank failures. The Nobel panel at the Royal Swedish Academy of Sciences in Stockholm said the trio's research had shown "why avoiding bank collapses is vital." The panel says that the findings of the three in the early 1980s laid the foundations for regulating financial markets and dealing with financial crises. Diamond, 68, based at the University of Chicago, and Dybvig, 67, who is at Washington University in St. Louis, showed how government guarantees on deposits can prevent a spiraling of financial crises. In 1983, they co-authored “Bank Runs, Deposit Insurance, and Liquidity,� which in part addressed damage from runs on banks. Bernanke, 68, now with the Brookings Institution in Washington, examined the Great Depression of the 1930s, showing the danger of bank runs - when panicked people withdraw their savings - and how bank collapses led to widespread economic devastation. Before Bernanke, economists saw bank failures as a consequence, not a cause, of economic downturns.
