They each have worked in a variety of areas of research, but they are perhaps best known for a 1983 paper called "Bank Runs, Deposit Insurance, and Liquidity." It presented their work that has since come to be known as the Diamond-Dybvig Model. Diamond and Philip Dybvig are economists and professors at the University of Chicago and Washington University in St. Who Are Douglas Diamond and Philip Dybvig?ĭouglas W. The model theorizes that deposit insurance can quell panic and reduce the likelihood of bank runs.Bank runs may be caused by depositor panic, but as a run becomes more likely, the rational approach for each individual depositor is to try to withdraw their funds.
The model suggests that a mismatch between assets and liabilities and liquidity concerns may leave banks vulnerable to runs.
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