"Bank Walks" with Central Bank Digital Currency 

How does a cash-like retail central bank digital currency (CBDC) change the competitive landscape of the bank deposist market? Exploiting the staggered entry of digital Chinese Yuan (the e-CNY), this paper shows that deposit qantities and prices of large and small banks converge after the introduction of e-CNY. By reducing the costs of "flight to safety", e-CNY alleviates depositors' concerns about the riskiness of the banks. Given small banks are viewed as riskier than large banks, e-CNY shrinks the safety gap between small and large banks, and results in small banks obtaining a larger market share and offering lower interest rates relative to large banks. This paper provides the first empirical evidence of the cross-sectional effects of a cash-like retail CBDC across different banks. While small banks experienced a "crowd-in" effect, large banks underwent the "crowd-out" effect. These findings are bolstered by results examining depositors' banking activities around e-CNY introduction, measured by the relative use of mobile banking apps at both large and small banks.