triple reward for the science of banking crises

Is this a sign of concern for the near future? The 2022 Bank of Sweden Prize in Tribute to Alfred Nobel has been awarded to Ben Bernanke, Douglas Diamond and Philip Dybvig, three specialists in financial crises, and more precisely in the main role that the fragilities of banks play in the severity of these crisis.

Ben Bernanke is best known for having been the chairman of the US Federal Reserve (Fed) from 2006 to 2014, when he had to deal with the subprime mortgage crisis (2007-2008) by “rescuing” US banks with an avalanche of bailouts. of securities and bonds. themes, celebrities quantitative easing (“quantitative easing”), quintupling the Fed’s balance sheet to $4 trillion. However, it is not because of this “feat” – today controversial because it is suspected of having “leads to current overheating and inflation”as Jean-Michel Naulot, former member of the Autorité des marchés financiers, points out that the economist is honored, but for his research on the history of the 1929 crisis.

Read the file (2013): Article reserved for our subscribers Ben Bernanke and the lessons of the crash of 1929

“The banks are the nodes”

In fact, it has shown that the main vehicle for the spread of the crisis in the real economy (bankruptcies, unemployment, Great Depression) after the initial financial crash in October is the cascade of bank closures ruined by the Wall Street crash. In fact, explains Augustin Landier, professor of finance at HEC, “Banks are the nodes where information from economic agents, individuals and companies is compared. If they disappear, this information is no longer available and the economy no longer works until confidence is restored.”. This demonstration by academic Ben Bernanke, a professor at Stanford, New York and Princeton, convinced central banker Ben Bernanke that it was necessary, in order to stop the subprime crisis, which he will admit in his crisis memories having initially underestimated the impact, “saving the banks”, at any cost – the shock caused by the bankruptcy of Lehman Brothers, on September 15, 2008, had more than confirmed it.

Also read the archive (2018): Article reserved for our subscribers Ten years after Lehman Brothers: the world is in debt

For David Thesmar, professor of finance at MIT, Douglas Diamond and Philip Dybvig are themselves two “pure” theorists, one at the University of Chicago, the other at Saint-Louis. They are awarded for an article that economists call “canonical” or “fundamental”, published in… 1983 in the Journal of Political Economy, “Bank Runs, Deposit Insurance and Liquidity”. In fact, this article launched a long list of research and publications by many of his colleagues on the fragilities of the banking system and the means to remedy it. The two economists demonstrated there, when the rolling fire of the financialization of the economy was barely beginning, that the banks suffer from an intrinsic weakness, inscribed in the very nature of their activity: their liabilities (the deposits they capture from savers) are short -term, since savers can withdraw them at the first sign of loss of confidence, while their assets (investments and investments in corporate or government securities) are long-term.

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