The Impact of CBDC on a Deposit-Dependent Banking System

We examine the implications of a central bank digital currency (CBDC) for banks using business models that are particularly dependent on customer deposits. Employing unique customer data hand-collected from savings and cooperative banks in Germany, we determine conversion rates for customer deposits to a CBDC.We show that even at moderate conversion rates, most banks would have experienced funding problems and lost profits if a CBDC had been introduced in most years from 2000 onward. Furthermore, our results demonstrate that although banks have rarely been as prepared for the introduction of CBDCs as in recent years, most banks must still refinance themselves on the interbank market or through the central bank. The erosion of the primary source of refinancing has implications for the liquidity and, hence, stability of these banks, and it reduces their profitability because low-interest customer deposits are exchanged for higher-interest interbank loans. Our results are relevant for commercial banks, contributing to better assessments of the impact of CBDCs on liquidity and profitability and helping central banks to find lower bounds of the costs for banks of a CBDC implementation