Bank failures come in waves
Continuing the theme of the article the current banking crisis has exposed two conflicting functions of money i.e., store of value and a vehicle of investment both of which are facilitated by banks.<p>Keeping money safe, whether physically or digitally, comes at a cost. Banks absorb this cost because they make money through credit creation, maturity transformation, and interchange fees. They even pass on some of that profit to depositors. However, each of these banking activities create risk, which is passed onto the deposit holders and is offset, to an extent, by deposit insurance. In low to zero-interest-rate scenarios, banks act as pure custodians as their revenues decline, which is why we saw EU banks charging negative interest rates, i.e., a fee, to maintain customer deposits.<p>There's a delicate balance and an inherent conflict between keeping money safe and earning yields, the two functions performed by a commercial bank. Customers don't perceive this conflict unless a bank breaks down as SVB did.<p>I think this crisis is the strongest yet reason to push for CBDCs as only a central bank can fully guarantee a deposit. In terms of systems design, this is a clear delineation of responsibilities.<p>CBDC: If you want safe custody of your money.<p>Bank: If you want to lend your money in return for a yield. And as with any lending, you take the risk of a borrower defaulting.