Douglas W. Diamond, Merton H. Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, has been elected a member of the National Academy of Sciences (NAS), the organization announced May 2.
Membership to the NAS is considered one of highest honors a scientist can receive, and members are elected in recognition of their distinguished and continuing achievements in original research.
Considered the father of modern banking theory, Diamond changed the way people view banks. His pioneering research laid the groundwork for how central bankers, regulators, policy makers and academics approach modern finance. He is known for his research into financial intermediaries, financial crises, and liquidity and his research agenda for the past 30 years has been to explain what banks do, why they do it, and the consequences of these arrangements.
“This election is a great honor, and I have been lucky to have the support of my colleagues at Booth,” Diamond said. “I’m glad that there remains substantial interest in the study of the financial system’s stability.”
Diamond’s earliest research explained how the economic role of banks generated an essential link between the properties of their assets and the form of their liabilities; he showed how the bank’s special assets (special because they monitored special information about business borrowers) forced them to finance themselves with debt liabilities (deposits) rather than equity and also led banks to diversify across many loans.
His subsequent research with Philip H. Dybvig developed the Diamond-Dybvig model, which demonstrated how banks specializing in creating liquid liabilities (deposits) to fund illiquid assets (such as business loans) may be unstable and give rise to bank runs.
Diamond’s groundbreaking work on bank runs and financial crises earned him the Chicago Mercantile Exchange Group-MSRI Prize in Innovative Quantitative Applications in 2015. He received the Morgan Stanley-American Finance Association Award for Excellence in Finance in 2012.
A member of the Chicago Booth faculty since 1979, Diamond is a research associate of the National Bureau of Economic Research and a visiting scholar at the Federal Reserve Bank of Richmond. He was president of the American Finance Association and the Western Finance Association and is a fellow of the Econometric Society, the American Academy of Arts and Sciences, and the American Finance Association.
He earned a bachelor's degree in economics from Brown University in 1975. He earned master's degrees in 1976 and 1977 and a PhD in 1980 in economics, all from Yale.