Ben Bernanke, former US Federal Reserve chief, wins Nobel Prize

Ben Bernanke, who led the US central bank during the 2008 financial crisis, is one of three recipients of this year's Nobel prize in economics.

The Royal Swedish Academy of Sciences said it was recognising the trio for research that had changed our understanding of financial crises.

The work focused on the importance of avoiding runs on banks.

The insights have "improved our ability to avoid both serious crises and expensive bailouts", the academy said.

Mr Bernanke's research showed how bank runs had prolonged the Great Depression in the 1930s. He later applied some of those lessons during his time at the US Federal Reserve, which he led from 2006-2014.

When the financial crisis hit, he pushed the Federal Reserve to intervene aggressively, slashing interest rates and helping to organise bailouts of some of America's biggest banks - moves that were politically controversial.

The tools he deployed were also used by the Fed and other central banks in 2020 to stabilise the economy when the Covid pandemic hit and many countries went into lockdown.

"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," said Stockholm University economist John Hassler, a member of the prize committee. "We can also note that even though the financial crisis had large consequences, neither that, nor the Covid pandemic, led to depressions like in the '30s."

When Mr Bernanke published his work in 1983, bank failures were viewed as a consequence of economic crisis, rather than the cause. His work turned that wisdom on its head.

Mr Bernanke, a long-time professor who is now a senior fellow at the Brookings Institution, said his work looks "primitive" today, but was unusual at the time for arguing that the financial system had a big impact on the rest of the economy.

"I'm incredibly honoured to be a co-winner," he said. He said the call was unexpected - noting that he learned the news from his daughter, after the committee failed to reach him because his mobile phone was off.

Mr Bernanke shared the prize with economists Douglas Diamond and Philip Dybvig, who are professors at the University of Chicago and Washington University in St Louis, Missouri respectively.

Their work showed the vital role banks play in the economy and how regulation, such as deposit insurance, can make banks less vulnerable to collapse, insights that the committee said "form the foundation of modern banking regulation".

Understanding financial crises remains a "first-order priority", Prof Hassler said in awarding the prize, which comes at a time of heightened global economic uncertainty.

Prof Diamond said the world is much better prepared for financial crises than it was in 2008. But he said unexpected events, like the surge in borrowing costs that hit the UK last month after the government unveiled plans for tax cuts, still pose risks, especially if people lose faith in the credibility of the system.

"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 said, speaking by phone at the announcement.

Mr Bernanke, speaking at a press conference in Washington after the award was announced, said the big risks to the current economy - such as the energy crisis in Europe - do not appear to be rooted in the financial system. But he warned that if lenders are affected, they can make the situation worse.

"I don't think we know very much [about] how changes in interest rates affect long-run financial stability," he added.

The award comes with 10 million Swedish crown ($885,000) in prize money, which will be split three ways.

Although not one of the original Nobel Prizes, the economics award is administered by the Nobel Foundation and is the last to be announced each year.

The other Nobel prizes were established by Alfred Nobel's will in 1895, while the economics prize, officially known as the Sveriges Riksbank (Sweden's central bank) Prize in Economic Sciences in Memory of Alfred Nobel, was created in 1968.

Previous winners, the majority of whom have been from the US, include Paul Krugman and Milton Friedman. It is unusual for the prize to go to a prominent policymaker.

Mr Bernanke, who earned his undergraduate degree at Harvard and doctorate from MIT, previously worked as a professor of economics at Princeton and other universities. He also served as an advisor to former president George W Bush.

The announcement brought congratulations from many economists, including Olivier Blanchard, former chief economist at the International Monetary Fund, who said Mr Bernanke had done more for global growth than any other living economist.

"Without his actions when the financial crisis came, GDP would have collapsed much more than it did," he wrote on Twitter. "So, on purely financial grounds, he deserves the prize (and on other grounds as well)."

But the prize also revived criticism of Mr Bernanke's actions, with some noting that he pioneered large bank purchases of government debt and other assets, which some say have helped fuel the price rises plaguing the economy today.

"Ben Bernanke wins the economic Nobel Prize at the very moment when the global financial system is (once again) on the edge due to the misguided monetary policies he and other central bankers spearheaded. This is a bankruptcy moment for central banking and the economics Nobel," Indian billionaire Sridhar Vudu, the chief executive of the Zoho technology firm, wrote on Twitter.