Today José Manuel Campa, Chairman of the European Banking Authority, was asked about the impact of a future digital euro central bank digital currency (CBDC) on the European banking system. Talking at the OMFIF Digital Money Symposium, he reflected on the recent banking crisis and that banking is already digitalized, allowing people to withdraw their deposits instantly. With that in mind, he questioned whether the current banking model is viable.
“This idea that we have banks which are comfortably sitting around with 90% site (deposit) liabilities. And 90% long term assets which are illiquid (with maturities of) 20 or 30 years down the road. It’s a model that’s not working,” said Campa. “It’s unlikely to work. It’s vulnerable. It’s always been vulnerable, but now it’s even more vulnerable.”
He suggested building guardrails to address the issue. For example, the proportion of liabilities should involve deposits at a lower level than 90% and lowering the balance of assets that are long term and illiquid. Another possible guardrail would be to have a CBDC with volume limits.
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