Ex-Fed boss Bernanke shares Nobel for bank studies

STOCKHOLM — Former US Federal Reserve chair Ben Bernanke, who put his academic expertise on the Great Depression to work reviving the US economy after the 2007-08 financial crisis, won the Nobel Prize in economic sciences along with two other US-based economists for their research into the fallout from bank failures.

Bernanke was recognized on Monday along with Douglas W. Diamond and Philip H. Dybvig. 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".

With their findings in the early 1980s, the laureates laid the foundations for regulating financial markets and dealing with financial crises, the panel said.

Bernanke, 68, now with the Brookings Institution in Washington, examined the Great Depression of the 1930s, showing the danger of bank runs when panicked savers withdrew their deposits.

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.

"The laureates' insights have improved our ability to avoid both serious crises and expensive bailouts," Tore Ellingsen, chair of the Committee for the Prize in Economic Sciences, said.

Their research took on great real-world significance when investors sent the financial system into a panic during the fall of 2008.

Bernanke, then head of the Fed, teamed up with the United States Treasury Department to prop up major banks and ease a shortage of credit, the lifeblood of the economy.

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.

They also pushed long-term interest rates to historic lows and led to fierce criticism of Bernanke, particularly from some 2012 Republican presidential candidates, that the Fed was hurting the value of the dollar and running the risk of igniting inflation later.

The Fed's actions under Bernanke extended the authority of the central bank into unprecedented territory. They were not able to prevent the longest and most painful recession since the 1930s. But in hindsight, the Fed's moves were credited with rescuing the banking system and avoiding another depression.

And Bernanke's Fed established a precedent for the central bank to respond with speed and force to economic shocks.

Nobel prizes carry a cash award of 10 million Swedish kronor ($886,000) and will be handed out on Dec 10.

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

Last year, half of the award went to David Card for his research on how the minimum wage, immigration and education affect the labor market. The other half was shared by Joshua Angrist and Guido Imbens for proposing how to study issues that do not easily fit traditional scientific methods.

A week of Nobel Prize announcements kicked off on Oct 3, with Swedish scientist Svante Paabo receiving the award in medicine for unlocking secrets of Neanderthal DNA that provided key insights into mankind's immune system.

Agencies via Xinhua