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 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鈥檚 talked to policymakers about the banking sector and that many of them have pointed to his influential research paper.
鈥淭hat 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鈥檚 also nice, because my dad told me I would never in my life do anything practical. It鈥檚 nice to have some evidence that I did something practical,鈥� Dybvig said.
Dybvig said he was surprised when he got the news.
鈥淚 didn鈥檛 expect it, but I鈥檝e been told by other people that they did. So it鈥檚 not 100% a total surprise. But I don鈥檛 know. I guess I didn鈥檛 really expect it would happen,鈥� Dybvig said.
Dybvig, Diamond and Bernanke will share the award and split $886,000 in prize money.
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