Douglas Diamond

Origins and early life

Douglas Warren Diamond was born on 25 October 1953 and was raised in the Hyde Park neighbourhood of Chicago by a single mother. According to his own Nobel biography, his paternal grandparents were Jewish. He went to Brown intending to read molecular biology and changed to economics after a course on Milton Friedman and Anna Schwartz's Monetary History of the United States, graduating in 1975, then took master's degrees and a doctorate at Yale, finished in 1980 under Stephen Ross — who was also supervising a fellow student named Philip Dybvig, with whom he fell into conversation while waiting outside their adviser's office.

Work and career

What came of those conversations was published in 1983 as the Diamond–Dybvig model, and it explains an institution by explaining its fragility. Savers want their money back on demand; borrowers need it for years. A bank exists to bridge that gap, and the bridge is what makes it vulnerable: since it cannot pay everyone at once, a depositor who believes others are about to withdraw is right to withdraw first, so a panic can be entirely self-fulfilling and destroy a solvent bank.

The paper also showed why deposit insurance works — it removes the reason to run rather than merely paying for the damage — and Diamond's companion paper of 1984 explained what banks do with the money, delegating to one monitor the costly job of watching a borrower that thousands of small lenders could not do individually. He has taught at the University of Chicago Booth School since 1979 and shared the 2022 Nobel Memorial Prize in Economic Sciences with Ben Bernanke and Philip Dybvig.