A University of Chicago finance professor considered one of the world’s foremost minds regarding the banking industry is one of three winners of the 2022 Nobel Memorial Prize in Economic Sciences for his influential research on the banking system.
Douglas Diamond, a widely respected professor who has worked for the Booth School of Business since 1979, became the 95th scholar associated with university to be a Nobel winner and the 33rd in economics, according to the university.
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Diamond receives the prestigious award alongside former Federal Reserve Chair Ben Bernanke, who oversaw the 2008 financial crisis, and professor Philip Dybvig of Washington University in St. Louis “for research on banks and financial crises,” according to the Nobel Foundation.
The trio will split the prize money of 10 million Swedish kronor, or about $885,000.
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The official announcement from the the Royal Swedish Academy of Sciences came just before 5 a.m. Chicago time. While calling the award a high honor in front of colleagues and members of the media on campus Monday, Diamond told reporters that there was a moment during the early morning phone call from Sweden that he thought it might be a prank from colleagues.
“I was sound asleep, so my main reaction was trying to figure out where my phone was,” said Diamond, 68, a Merton H. Miller distinguished service professor, when asked about his first reaction to winning.
“So I heard this Swedish voice on there saying, ‘Are you professor Doug Diamond?’ … I said, ‘Yes.’ I did know this was the day that they announce the prize, and I thought it was probably legit,” he said to laughter. “But you never know — I have some friends with a good sense of humor.”
Diamond’s early research in the 1980s with Dybvig created theoretical models that illustrated why banks succeed and fail, and explained the connection between liquidity and mass bank withdrawals by worried customers. Among their recommendations, the pair suggested government-backed bank deposit insurance as a way of counteracting jittery customers.
“Modern banking research clarifies why we have banks, how to make them less vulnerable in crises, and how bank collapses exacerbate financial crises,” the Royal Academy said in a statement. “The foundations of this research were laid by (the three laureates) in the early 1980s. Their analyses have been of great practical importance in regulating financial markets and dealing with financial crises.”
Diamond’s work with Dybvig is considered seminal among economists, and Diamond’s advice was essential in the days after the 2008 collapse.
“Doug Diamond is the foundation scholar of much of what we know about banking and financial institutions,” fellow U. of C. professor and former Obama administration economic adviser Austan Goolsbee told the Tribune. “He’s also extremely practical — was an unheralded key adviser to policymakers during the financial crisis and beyond about how to make the system safer.”
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Diamond is also a trusted voice for friends and co-workers seeking personal advice, Goolsbee added.
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“Everyone is over the moon about his winning except for the fact that he’s the person all the other faculty turn to for life advice about which UChicago health plan to choose, which retirement plan is best, what’s the best place to buy appliances, etc.,” Goolsbee said. “So now everyone is worried they won’t have Doug to figure things out for them now.”
Diamond suggested that he would stick around the university to complete research projects before considering retirement, along with possibly bumping up his retirement accounts.
After briefly commenting on his career at Booth and his relationship with colleagues and students, Diamond held court answering audience finance questions, ranging from the current state of the banking system — which he called “in reasonably good shape” — to his take on the reliability of cryptocurrencies, which he viewed as highly risky.
Chicago Tribune’s Maddie Ellis contributed.
Twitter @Midnoircowboy
