Philip Dybvig

The Diamond-Dybvig model, published by Douglas Diamond and Philip Dybvig in 1983, shows how banks create liquidity by transforming illiquid assets (like long-term loans) into liquid liabilities (like demand deposits). The model demonstrates that this maturity transformation is valuable but also creates inherent vulnerability to bank runs.

Dybvig shared the 2022 Nobel Memorial Prize in Economic Sciences with Douglas Diamond and Ben Bernanke for research on banks and financial crises. The Nobel committee cited their work explaining why banks exist, how they make society vulnerable to crises, and how short-term government deposit insurance can prevent bank runs.

The model shows that bank runs can occur as self-fulfilling prophecies—even fundamentally solvent banks can collapse if depositors panic and rush to withdraw simultaneously. Since banks hold only fractional reserves and have illiquid assets, they cannot satisfy all depositors at once, making early withdrawal rational if others are also withdrawing.

Dybvig is a professor at Washington University in St. Louis, where he holds the Boatmen's Bancshares Professorship in Banking and Finance. He has previously taught at Princeton University and Yale University, and earned his PhD from Yale in 1978.