Figure 2
The flowchart depicts the process and outcomes of bank customers moving their deposits from the commercial banking system to the central banking system in a CBDC environment. The commercial banking system includes bank deposits, which, when moved to CBDC deposits, lead to a reduction in bank deposit funding. This reduction increases the funding cost for banks, resulting in fewer bank loans from available deposits and a decrease in bank earnings. Simultaneously, bank managers respond by reducing loan loss provisions (LLPs), which increases the net interest margin and ultimately leads to higher bank earnings. On the central banking system side, CBDC deposits result in greater deposit liquidity in the central bank system.Bank managerial discretion and accrual earnings management using LLP in a CBDC environment. Source: Author