Nobel Prize in Economics 2022
Recently the Nobel Prize in Economics for the year 2022 has been announced.
Ben S. Bernanke, Douglas W. Diamond and Philip H have been announced the Sveriges Riksbank Prize in Economics for the year 2022.
These three economists are being given this award for their research on ‘Banks and Financial Crisis’.
The analyzes of these economists are of great practical importance in regulating financial markets and dealing with financial crises.
Key findings of research-
- According to Bernanke, the financial crisis was caused by the failure of the banks. Additionally, the ‘bank run’ was a major cause of the Great Depression of the 1930
- Bank run situation arises when depositors become concerned about the existence of the bank and they start withdrawing their savings from banks before it was believed that banks fail due to financial crisis.
- As a solution, Diamond and Diabwig said the provision for ‘insurance of deposits’ is an important tool to maintain trust and prevent bank runs.
- Under ‘deposit insurance’, a fixed amount of deposits in a bank is insured.
- In the unbanked world, “it would be impossible to make long-term investments because of the conflict between the needs of the savers and the investors.
- In case of unforeseen expenses, savers want to withdraw their deposits immediately. It is also called ‘liquidity requirement’. At the same time, borrowers need money for a longer period.
- Banks are able to resolve this opposite situation through ‘maturity transformation’.
- ‘Maturity transformation’ is a process whereby the bank acts as an intermediary. He converts assets with longer maturity into bank accounts with shorter maturity.
It may be noted that unlike other prizes, the Prize in Economics was not established in 1895 by the will of Alfred Nobel, but in his memory by the Swedish central bank, the first winner was chosen in 1969.
Source – The Hindu
