Nobel Economics PrizeEx-Fed Chair Bernanke Among Winners for Work on Financial Crises
Ben S. Bernanke, the former Federal Reserve chair, and the economists Douglas W. Diamond and Philip H. Dybvig were awarded for research on banks and “how society deals with financial crises.”
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Ben S. Bernanke, the former chair of the Federal Reserve, on Monday won a Nobel Memorial Prize in economics for his research into banks and financial crises — work he was able to draw on in real time while fighting the worst downturn America had faced since the Great Depression.
Mr. Bernanke
became Fed chair in 2006, shortly before U.S. house prices
ended their breakneck ascent and began an unexpected and devastating decline. As the housing market cooled, overextended borrowers fell behind and defaulted on their mortgages, and a pile of risky mortgage debt that had been sliced, diced and parceled out across big banks and the broader financial system began to drag down institutions and break the gears of finance.
Mr. Bernanke, who received a Ph.D. in economics from the Massachusetts Institute of Technology and who taught at Princeton University before coming to the Fed as a governor in 2002, drew upon his research about the Great Depression to try to stem the fallout. He worked with colleagues to set up emergency programs that backstopped various markets on the brink of collapse, from short-term business debt to securitized loans. And alongside the Treasury Department, he used the Fed’s powers to
enable bailouts for bank and insurance company portfolios.
Mr. Bernanke’s track record on the crisis included controversy. The Fed and Treasury Department allowed Lehman Brothers to fail, which Mr. Bernanke
has said he and his colleagues believed was their only option. Some
critics have since argued that the investment bank
could and should have been saved. The ripple effects of that failure worsened the downturn, which lasted from 2007 to 2009 in the United States and sent activity tumbling around the world.
But the Fed acted aggressively to try to resuscitate the economy. Under Mr. Bernanke’s watch, it began to implement bond-buying policies in which it purchased huge amounts of government-backed debt to lower long-term interest rates. It also pushed toward greater transparency, beginning to hold quarterly news conferences (which now accompany every rate-setting meeting) and formally adopting an inflation target of 2 percent.
Mr. Bernanke left the Fed in 2014 and he is now a distinguished senior fellow at the Brookings Institution in Washington. He won the Nobel for his work on financial crises,
including a 1983 paperthat broke ground in explaining that bank failures propagate downturns and aren’t simply a side effect of them.
