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Bank profitability and central bank digital currency

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Abstract

This paper analyzes the potential effect of a European Central Bank Digital Currency (CBDC) on banks’ profitability. We use a large sample of EU banks that span the period from 2007 to 2021 to assess the sensitivity of banks’ profits to the deposits. Using quantile regression, we estimate the conditional profit distribution of a representative bank. We then introduce a shock on the amount of deposits that would be replaced by the CBDC. Our results show that, for a large take-up of CBDC, there might be substantial challenges for the profitability of banks, especially for small banks, that mostly rely on deposits as a source of funding.

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  • Bellia, Mario & Calès, Ludovic, 2023. "Bank profitability and central bank digital currency," JRC Working Papers in Economics and Finance 2023-06, Joint Research Centre, European Commission.
    • Handle: RePEc:jrs:wpaper:202306
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    File URL: https://publications.jrc.ec.europa.eu/repository/handle/JRC133796
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    Cited by:

    1. Volker Brühl, 2025. "How will the digital euro work? A preliminary analysis of design, structures, and challenges," Electronic Markets, Springer;IIM University of St. Gallen, vol. 35(1), pages 1-12, December.
    2. König, Jörg & Meyer, Tim, 2025. "Der Digitale Euro: Mehrwert oder Risiko?," Argumente zur Marktwirtschaft und Politik 179, Stiftung Marktwirtschaft / The Market Economy Foundation, Berlin.
    3. Magin, Jana Anjali & Neyer, Ulrike & Stempel, Daniel, 2025. "Cash or Cache? Distributional and business cycle implications of CBDC holding limits," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 101(C).

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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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