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The Reasons Behind Banking Crises and their Real Economy Impact - Achievements of the 2022 Nobel Laureates in Economics

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  • Balazs Vilagi

    (Magyar Nemzeti Bank, John Von Neumann University)

Abstract

In 2022, the Nobel Prize in economics was awarded jointly to Ben S. Bernanke, Douglas W. Diamond and Philip H. Dybvig, for their research on the financial system that shed light on the reasons for, and the consequences of, bank panics. Diamond and Dybvig showed that the banking system provides socially useful services through maturity transformation and delegated monitoring, and they also pointed out that maturity transformation made the banking system fundamentally vulnerable, which, if left unregulated, may experience bank panics. Bernanke demonstrated the macroeconomic significance of the banking system and analysed the negative macroeconomic impact of bank panics. Their research helped lay the foundations of a regulatory environment that fosters the efficient functioning of the financial system without bank panics.

Suggested Citation

  • Balazs Vilagi, 2023. "The Reasons Behind Banking Crises and their Real Economy Impact - Achievements of the 2022 Nobel Laureates in Economics," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 22(1), pages 126-142.
    • Handle: RePEc:mnb:finrev:v:22:y:2023:i:1:p:126-142
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    References listed on IDEAS

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    1. Gorton, Gary B., 2012. "Misunderstanding Financial Crises: Why We Don't See Them Coming," OUP Catalogue, Oxford University Press, number 9780199922901, Decembrie.
    2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    3. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
    4. Ben S. Bernanke, 2015. "The Federal Reserve and the Financial Crisis," Economics Books, Princeton University Press, edition 1, number 9928-2.
    5. Davison, Lee K. & Ramirez, Carlos D., 2014. "Local banking panics of the 1920s: Identification and determinants," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 164-177.
    6. Chari, V V & Jagannathan, Ravi, 1988. " Banking Panics, Information, and Rational Expectations Equilibrium," Journal of Finance, American Finance Association, vol. 43(3), pages 749-761, July.
    7. Gábor Neszveda, 2018. "The Contribution of Thaler to Behavioural Economics," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 17(1), pages 153-167.
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    More about this item

    Keywords

    banks; financial crises; financial markets and the macroeconomy;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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