Core Focus: How CBDCs alter bank business models through changes in funding costs, lending capacity, and net interest margins, and the differential impact across bank types.

In-Depth Notes:
The introduction of a CBDC would not merely affect bank deposit levels; it would fundamentally alter the business model of commercial banks. The transformation would occur through multiple channels, affecting bank funding, lending, and profitability.

Impact on Funding Costs:
If CBDC attracts deposits away from commercial banks, banks would face a shrinking and potentially more expensive funding base. To retain deposits, banks might need to offer higher interest rates, compressing their net interest margins. The OECD study estimates that unrestricted retail CBDC could lead to a reduction in aggregate retail deposits of up to 24 to 37 percent, with significant negative structural impacts in terms of bank net interest margins . The DSGE modelling by Bolcan (2026) found that the direct (one-tier) CBDC design amplifies disintermediation under stress: deposit flight to CBDC is faster and larger, spreads widen, and bank loans contract more .

Impact on Lending Capacity:
With a smaller and more expensive deposit base, banks would have less capacity to extend credit. This could reduce the availability of loans to households and businesses, potentially slowing economic growth. The DSGE analysis by Bolcan (2026) found that under a direct CBDC design, bank loans contract more sharply following adverse shocks, leading to a more negative output gap and stronger disinflation . A study using a macroeconomic model found that the replacement of bank deposits with CBDC alters the structure of monetary assets and can have significant impacts on banking stability and the macroeconomy .

Impact on Net Interest Margins:
Net interest margins (NIMs) are the primary source of bank profitability. If banks face higher funding costs and are unable to fully pass these costs on to borrowers, NIMs would compress. The OECD study suggests that significant negative structural impacts on net interest margins are likely if CBDC adoption is unrestricted .

Differential Impact Across Bank Types:
The impact of CBDC on banks would not be uniform. Smaller banks, which often have less diversified funding sources and higher reliance on retail deposits, would likely be more vulnerable to deposit outflows than larger, more diversified institutions. The two-tier design preserves intermediation: deposit competition improves pass-through but does not trigger destabilising outflows .

The Role of Accommodative Monetary Policy:
Research from the Asian Development Bank found that accommodative monetary policy plays a moderating role in the relationship between CBDC adoption and bank stability. By taking an accommodative monetary policy stance, adopting CBDC favours bank stability . The study also found that the effect is greater in lower-middle-income countries than in upper-middle-income nations .