Former Federal Reserve Chair Ben S. Bernanke and two U.S.-based colleagues won the 2022 Nobel Prize in economics for their research into banking and financial crises.

Douglas Diamond, Philip Dybvig and the one-time central banker will share the 10-million-kronor ($885,000) award, the Royal Swedish Academy of Sciences announced in Stockholm on Monday.

“The laureates have provided a foundation for our modern understanding of why banks are needed, why they are vulnerable and what to do about it,” John Hassler, professor of economics and member of the prize committee, told reporters in Stockholm. “In the laureates’ work, it is shown that deposit insurance is a way of short-circuiting the dynamics behind bank runs. With deposit insurance, there is no need to run to the bank.”

By honoring Bernanke, the prize committee have taken an unusual step of adding an actual practitioner of economics policy to their pantheon. By contrast, many prior winners have stayed firmly rooted in academia.

That’s illustrated by the widespread list of research areas celebrated in the past decade. They range from the integration of climate change and technological innovations into economics in 2018, to studies involving global poverty and auction theory in successive years.

Diamond and Dybvig were lauded for their research identifying the vulnerability of banks to rumors of collapse, and how governments can prevent that. Bernanke’s studies meanwhile analyzed the Great Depression, and how bank runs ensured that crisis became so extended.

“Prior to Bernanke’s study, the general perception was that the banking crisis was a consequence of a declining economy, rather than a cause of it,” the committee said. “Bernanke established that bank collapses were decisive for the recession developing into deep and prolonged depression. Bernanke demonstrated that the economy did not start to recover until the state finally implemented powerful measures to prevent additional bank panics.”

The former Fed chief, who pioneered the use of unconventional monetary policies, in particular deploying large-scale asset purchases, is now at the Brookings Institution in Washington. Diamond is at the University of Chicago, while Dybvig is at Washington University in St. Louis.

Under Bernanke’s tenure, the Fed’s balance sheet soared to more than $4 trillion from less than $1 trillion as the central bank sought to foster growth in the U.S. economy pummeled by the global financial crisis.

Diamond, the only one of the three the award committee was able to reach, told journalists by phone that, as with most such winners, the news had taken him by surprise while sleeping. He went on to explain what his research showed about financial turmoil, and how to avoid it.

Crises happen “when people start to lose faith in the stability of the system,” he said. “The best advice is to be prepared for making sure that your part of the banking sector is both perceived to be healthy and to stay healthy, and respond in a measured and transparent way to changes in monetary policy.”

He added that the world is “certainly much better prepared” for any new crises than in 2008. “Since then, both recent memories of that crisis and improvements of the regulatory policies around the world have left the system much less vulnerable.”

In some respects, the risk of such turmoil is even necessary for the financial sector to provide vital functions to society.

“It’s possible, but it’s not necessarily desirable, to never have a financial crisis,” Diamond said. “I think we will probably always be subject to low-probability unexpected crises.”

The prize in economic sciences was established by Sweden’s central bank in 1968, adding another category to existing ones lauding achievements in physics, chemistry, medicine, peace and literature. Those were created in the will of Alfred Nobel, the Swedish inventor of dynamite, who died in 1896.

Once again, all winners of the economics prize were male. It has been bestowed on women only twice, while 87 men have previously been honored.

The award is formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Among the most well-known 20th-century recipients are Milton Friedman, James Tobin, Paul Krugman and Friedrich August von Hayek.

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