Md. Takrim Hossain, Sharika Sabha
Design: Amirus Salehin Ha-meem
The 2022 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was awarded to Ben S. Bernanke, Douglas W. Diamond, and Philip H. Dybvig for their research on banks and financial crises.
Bernanke’s paper, for which he received the award, attempted to explain the Great Depression. That the financial system can be a driver of economic activity and unemployment was not conventional back then. But his paper, which essentially dealt with the idea of bank credits, stated that banks fail due to bank runs, which results in an aggravated financial crisis.
Whereas, the Diamond-Dybvig model, a widely used model of bank runs and associated financial crises, shows that banks work as an intermediary to resolve the conflict between the demands of savers and investors. The model explained that to prevent bank runs, there should be a guarantee—a deposit insurance scheme.
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