CBDC and Banks: Threat or Opportunity?

A Central Bank Digital Currency (CBDC) would reduce commercial bank deposits and provide households with a new payment technology. We develop a structural model of the banking sector, calibrate it, and introduce a CBDC to run counterfactual analyses. We find that, if the central bank compensates the commercial banks for the loss in deposits, then banks optimally push households towards the CBDC. This allows banks to capture the consumer surplus stemming from the new technology and increase their profit margin. The design of the compensation mechanism can mitigate this effect.