Former U.S. Federal Reserve Chair Ben Bernanke, who put his academic expertise on the Great Depression to work reviving the American economy after the 2007-2008 financial crisis, won the Nobel Priz…
By DAVID KEYTON, FRANK JORDANS and PAUL WISEMAN | The Associated Press
With their findings in the early 1980s, the laureates laid the foundations for regulating financial markets, the panel said. 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 and 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.
“The problem is that these vulnerabilities of the fear of runs and dislocations and crises can show up anywhere in the financial sector. It doesn’t have to be commercial banks,” he said. He slashed short-term interest rates to zero, directed the Fed’s purchases of Treasury and mortgage investments and set up unprecedented lending programs. Collectively, those steps calmed investors and fortified big banks.
And Bernanke’s Fed established a precedent for the central bank to respond with speed and force to economic shocks.
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