CBDC and the shadow of bank disintermediation: US stock market insights on threats and remedies

Deposit-dependent banks might be negatively affected by a central bank digital currency (CBDC) introduction. Particularly, a retail CBDC aimed at consumers may constrain cheap funding, thus eroding bank profits (deposit channel). Our empirical study reveals that stock market reactions of US banks to...

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Bibliographic Details
Published in:Finance research letters 2024-09, Vol.67, p.105868, Article 105868
Main Authors: Beckmann, Lars, Debener, Jörn, Hark, Paul F., Pfingsten, Andreas
Format: Article
Language:English
Subjects:
Central bank digital currency
Event study
Financial intermediation
Financial stability
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Summary:Deposit-dependent banks might be negatively affected by a central bank digital currency (CBDC) introduction. Particularly, a retail CBDC aimed at consumers may constrain cheap funding, thus eroding bank profits (deposit channel). Our empirical study reveals that stock market reactions of US banks to speeches by US Federal Reserve (FED) executives indicating they intend to introduce a CBDC are indeed more negative the more these banks depend on deposits. However, as soon as the FED promises protection against disintermediation, e.g., via a non-interest bearing CBDC or a CBDC holding limit, we observe that highly deposit-dependent banks experience positive stock market reactions. •Deposit-dependent banks might be negatively affected by a CBDC introduction.•Event study analyzes market participants’ expectations of CBDC’s impact on banks.•Deposit-dependent banks react negatively to higher CBDC introduction probability.•When the FED discusses safeguards, deposit-dependent banks show favorable reactions.•Non-interest CBDCs and holding limits are perceived as effective safeguards.
ISSN:1544-6123
DOI:10.1016/j.frl.2024.105868