New Delhi: Three US economists Ben Bernanke, Douglas Diamond and Philip Dybvig were on Monday awarded this year’s Nobel Prize for Economics for explaining the role of banks in the economy.

The American trio was given the honour for helping to “significantly improve our understanding of the role of banks in the economy, particularly during financial crises, as well as how to regulate financial markets”, the jury said.

The winners were announced by the Royal Swedish Academy of Sciences in Stockholm.

“Their analyses have been of great practical importance in regulating financial markets and dealing with financial crises,” it added.

The Chair of the Committee for the Prize in Economic Sciences, Tore Ellingsen, said that their “insights have improved our ability to avoid both serious crises and expensive bailouts” in banking systems.

The beginnings of Bernanke, Diamond, and Dybvig’s analysis date to the early 1980s and ever since their findings “have been of great practical importance in regulating financial markets and dealing with financial crises,” the academy said.

The statement from the academy said Diamond and Dybvig’s theory shows how banks offer an optimal system and “by acting as intermediaries that accept deposits from many savers, banks can allow depositors to access their money when they wish, while also offering long-term loans to borrowers.”

Diamond also has shown how banks perform a societally important function as intermediaries between savers and borrowers by “assessing borrowers’ creditworthiness and ensuring that loans are used for good investments,” according to the award committee.

The academy said Ben Bernanke analyzed the Great Depression of the 1930s, the worst economic crisis in modern history, and has shown how bank operations “were a decisive factor in the crisis becoming so deep and prolonged.”

Bernanke has demonstrated, the academy said, that “when the banks collapsed, valuable information about borrowers was lost and could not be recreated quickly,” and therefore, “society’s ability to channel savings to productive investments was thus severely diminished.”

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