Core Focus: The two distinct channels through which CBDCs can destabilise banks: “slow disintermediation” in normal times (deposit erosion and higher funding costs) and “fast disintermediation” in times of stress (accelerated bank runs).

In-Depth Notes:
The potential impact of CBDCs on the banking system is debated through two distinct phenomena: slow disintermediation and fast disintermediation . The BIS has examined both channels and their implications for financial stability .

Slow Disintermediation:
Slow disintermediation refers to the gradual erosion of bank deposits in normal times as households and businesses shift some of their funds from commercial banks to CBDC accounts. This channel operates through competition: if CBDC offers a safe, convenient, and risk-free digital payment option, it may attract deposits away from commercial banks . Over time, this could lead to more expensive funding for banks, a shrinking of the banking sector, and a potential reduction in credit supply. A study by the OECD found that the introduction of unrestricted retail CBDC could lead to a reduction in aggregate retail deposits held by commercial banks of up to 24 to 37 percent, having significant negative structural impacts in terms of bank net interest margins .

Fast Disintermediation:
Fast disintermediation refers to the risk that CBDC provides an especially convenient asset to hold in times of banking stress, enhancing the scope for bank runs . In a traditional bank run, depositors face frictions in withdrawing physical cash: they must physically go to a branch, wait in line, and handle large amounts of paper money. With CBDC, withdrawal is digital and instantaneous—a depositor can transfer funds from a bank account to a digital wallet with a few clicks. The BIS found that a CBDC introduced with a suitable holding limit increases financial stability and welfare by choking off its effect on run risk .

Evidence from Household Surveys:
Survey evidence from German households indicates that households are open to CBDC in normal times and that they may replace some of their bank deposit holdings with a digital euro. However, the demand for CBDC also raises financial stability concerns as households seem more likely to withdraw funds from banks during times of stress if a CBDC is available . This survey evidence directly informed the quantitative model used by the BIS to assess the optimal design of CBDC holding limits. The findings indicate that a CBDC with a suitable holding limit can enhance financial stability and welfare, while an unlimited CBDC could significantly increase run risk.