Are you saying that banks in Europe would prefer not to accept any deposits at all?
In the US, banks do often try to justify high fees by pointing to the relatively high cost of administering small accounts. But those accounts are still profitable for the banks because of the fees—they don't actually want to give up that revenue. And CBDCs don't just threaten banks' consumer banking business.
Although my previous comment was focused primarily on consumer account holders, similar incentives exist for businesses. Any business that has bank account balances in excess of the FDIC insured amount is extending credit to its bank. Yes, banks tend to be trustworthy, but the 2008 crisis showed us that even the largest institutions can fail, and then you are just hoping that the US government stands up and covers more than what the FDIC is obligated to.
As a business owner, it wouldn't be a difficult decision to shift all my bank balances over to CBDCs, provided that the physical security and anti-fraud risk could be sufficiently covered. I would much rather have 100% of my risk exposure be to the US government, rather than to a bank that may or may not be backed by the US government if the shit hits the fan. Banks today are unable to offer interest rates that would compensate for that risk differential.
I am also confident that a CBDC would be easier to use and more flexible from a user experience perspective than my bank's current systems.
All this is to say that we would all hear a giant sucking sound emanating from banks' balance sheets if CBDCs were introduced, not only because people would be closing their consumer accounts, but also because businesses would be withdrawing funds from their business accounts.
Yes, there are accommodations and affordances that can be made to keep the banks in the game somehow, and there are "bank-like" roles to be filled in a crypto economy. However, banks today would find it difficult and disruptive to make that shift, and many wouldn't be able to make that shift at all.
Banks would go out of business. Big banks would go out of business, and that is the last thing that any central banker wants to have happen. The fact that by introducing a CBDC a central bank itself would be the direct cause of bank failures makes the whole concept quite dubious, in my mind.
> Are you saying that banks in Europe would prefer not to accept any deposits at all?
Kinda [0]:
> Germany’s biggest lenders, Deutsche Bank AG and Commerzbank AG , have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. The banks say they can no longer absorb the negative interest rates the European Central Bank charges them. The more customer deposits banks have, the more they have to park with the central bank.
That is creating an unusual incentive, where banks that usually want deposits as an inexpensive form of financing, are essentially telling customers to go away. Banks are even providing new online tools to help customers take their deposits elsewhere.
Banks in Europe resisted passing negative rates on to customers when the ECB first introduced them in 2014, fearing backlash. Some did it only with corporate depositors, who were less likely to complain to local politicians. The banks resorted to other ways to pass on the costs of negative rates, charging higher fees, for instance.
In The Netherlands the ABN AMRO uses a different strategy [1] to nudge clients to put deposits above 10k at a different bank.
OK, this makes sense, but I think it's more a function of the ECB's negative interest rates than anything else. The situation is not the same in the US, nor is it throughout most of the world.
Also, I'm not sure if I would describe this as banks wanting to get rid of deposits, rather than wanting to make money off of them. It's not as if banking customers have meaningful alternatives at the moment, do they?
In the US, banks do often try to justify high fees by pointing to the relatively high cost of administering small accounts. But those accounts are still profitable for the banks because of the fees—they don't actually want to give up that revenue. And CBDCs don't just threaten banks' consumer banking business.
Although my previous comment was focused primarily on consumer account holders, similar incentives exist for businesses. Any business that has bank account balances in excess of the FDIC insured amount is extending credit to its bank. Yes, banks tend to be trustworthy, but the 2008 crisis showed us that even the largest institutions can fail, and then you are just hoping that the US government stands up and covers more than what the FDIC is obligated to.
As a business owner, it wouldn't be a difficult decision to shift all my bank balances over to CBDCs, provided that the physical security and anti-fraud risk could be sufficiently covered. I would much rather have 100% of my risk exposure be to the US government, rather than to a bank that may or may not be backed by the US government if the shit hits the fan. Banks today are unable to offer interest rates that would compensate for that risk differential.
I am also confident that a CBDC would be easier to use and more flexible from a user experience perspective than my bank's current systems.
All this is to say that we would all hear a giant sucking sound emanating from banks' balance sheets if CBDCs were introduced, not only because people would be closing their consumer accounts, but also because businesses would be withdrawing funds from their business accounts.
Yes, there are accommodations and affordances that can be made to keep the banks in the game somehow, and there are "bank-like" roles to be filled in a crypto economy. However, banks today would find it difficult and disruptive to make that shift, and many wouldn't be able to make that shift at all.
Banks would go out of business. Big banks would go out of business, and that is the last thing that any central banker wants to have happen. The fact that by introducing a CBDC a central bank itself would be the direct cause of bank failures makes the whole concept quite dubious, in my mind.