In the whitepaper titled “Competition for retail deposits between commercial banks and non-bank operators two-sided platform analysis”, the central bank has stated that alternatives for commercial banks’ current and savings accounts could easily threaten the established business model of the traditional banking system, which thrives on the availability of unhindered supply of retail deposits at a cheap rate.
Cheap source of funding enables banks to realize a viable net interest margin (NIM). The report further points out that the threat could turn into a reality if customers were given an option to store their money directly at the central bank or in the form of central bank digital currencies (CBDC). Furthermore, according to the research paper, competition from non-banking financial institutions can increase the funding costs of banks.
This would have a negative impact on the interest margin levels. Ultimately, such a scenario would have a severe impact on the balance sheet of banks. As fund outflow increases, banks may be forced to rethink their lending business model. The banks may be even forced to opt for a “narrow banking business model whereby their lending activity is entirely reliant on non-insured funding from retail and wholesale investors.”
The central bank paper also describes a strange idea of giving public access to its balance sheet to store their cash holdings in a personal account. Additionally, the general public would also be allowed to transmit payments through facilities such as “digital wallet”. So, the “universal disintermediated access” to central bank’s balance sheet and payment facilities provided by digital wallet service providers would enable depositors to forego the use of savings account services offered commercial banks.