Impact of central bank digital currency (CBDC) activity on bank loan loss provisions

Peterson Ozili

MPRA Paper from University Library of Munich, Germany

Abstract: This article explores the potential effect of central bank digital currency activity on bank loan loss provisions. We show that the effect of CBDC activity on bank loan loss provisions depends on the nature of CBDC activity and whether CBDC activity is regulated or non-regulated. As more people use CBDCs, it could lead to shortfall in bank deposits and increase funding and liquidity risk and generate a pass-through to credit risk which would require banks to increase loan loss provisions in anticipation of loan loss arising from CBDC activity. CBDC regulation may dampen this effect.

Keywords: digital innovation; loan loss provision; central bank digital currency; bank (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:118797

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