St. Louis has a new Nobel Prize winner in economics.
Philip Dybvig, a professor of banking and finance at Washington University, was recognized Monday for a paper he co-authored with Douglas Diamond of the University of Chicago exploring the role banks play as intermediaries and how a financial crisis can undermine that.
They will share the prize with former Federal Reserve Chairman Ben Bernanke, who is now at the Brookings Institution.
The three were cited for their work on showing both the importance of banks to stabilize the economy and how easily their power to play that role can crumble during economic turmoil.
"If a rumor starts that people are going to take out their money from the bank, then everyone has an incentive to rush to the bank to take out money in time and not come last in line," John Hassler of the Royal Swedish Academy of Sciences explained in announcing the prize. "This can create failing banks."
Dybvig said that over the years he’s talked to policymakers about the banking sector and that many of them have pointed to his influential research paper.
“That I think is really satisfying and not something that I expected at the outset. I think my co-author, Doug Diamond, may have understood that better than I did. It’s also nice, because my dad told me I would never in my life do anything practical. It’s nice to have some evidence that I did something practical,” Dybvig said.
Dybvig said he was surprised when he got the news.
“I didn’t expect it, but I’ve been told by other people that they did. So it’s not 100% a total surprise. But I don’t know. I guess I didn’t really expect it would happen,” Dybvig said.
Dybvig, Diamond and Bernanke will share the award and split $886,000 in prize money.
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