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Diamond shares the 2022 Nobel Memorial Prize in Economic Sciences, awarded jointly with Ben Bernanke and Philip Dybvig for explaining why banks exist and why they are vulnerable to collapse. His Diamond-Dybvig model, published in 1983, showed how banks convert short-term deposits into long-term loans and, in doing so, create the possibility of self-fulfilling bank runs — a framework that shaped how economists and regulators think about financial crises. He has taught at the University of Chicago Booth School of Business since 1979 and later served as president of both the American and Western Finance Associations.