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So, what happened in open banking 2019? In Australia, open banking is finally launched; Payments NZ in New Zealand launches open banking APIs and ther NZ banks follow; Mexico continues to be the hot spot for LATAM; Brazil launches open banking model; Additional API offerings launched in Malaysia to further enrich the open banking market there; US banks begin conversations on open banking and to develop open banking 'like' APIs; the Central Bank of Nigeria places open banking on its Payments Vision Statement (PSV) 2030 to become the next EMEA country to implement open banking; and Bahrian makes claim to implementing open banking.

Central Bank Digital Currency: Central Banking for All? This St. Louis Fed paper, which has been kicking around in draft form for some time, discusses how the introduction of a central bank digital currency allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. In such a world, because a central bank is not an investment expert and cannot invest in long-term projects itself, it relies on commercial banks to do so. The paper derives an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, it shows that the rigidity of the central bank's contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endanger maturity transformation.

The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, we show that the rigidity of the central bank's contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endangered maturity transformation.

In this paper, a unique event is studied: the opening of Bank of Canada in 1935, the central bank note issuance monopoly and its impact on the note issuing chartered banks. Between 1935-1950, Canadian chartered banks had to gradually withdraw their notes from circulation. In a difference-in-differences analysis, it shows that chartered banks constrained by new issuance limits experienced higher volatility of return-on-equity in the short run and lower Z-scores and return-on-assets in the longer horizon, suggesting that note issuance was an important source of revenue for private banks and allowed them to smooth the profits. The effect on lending is either non-significant or ambiguous. This study of central bank cash implementation can offer lessons for the current debates on a new form of central bank money - central bank digital currencies - and their potential impacts on commercial banks.

The Bank for International Settlements (BIS) published a paper that analyses the development, motivations and concerns of central bank digital currencies (CBDCs) in Africa. While all of those surveyed are analyzing CBDCs, only few have projects at advanced stages (pilot or live). Some countries, in particular in East and West Africa, stand out as promoting fast payment systems through mobile money, but half of the surveyed central banks think that CBDCs can provide a superior solution. A key motivation for African central banks is achieving greater payment system efficiency. In addition, a higher proportion than in other regions see potential benefits for monetary policy, an important consideration for a region where the transmission mechanism is weak. Central banks in Africa also place more emphasis on financial inclusion. At the same time, they are more worried than other regions about cyber security risks and cross-border spillovers and are also concerned about high operational burdens... And speaking of high operational burdens,  only just over 40% of respondents favored a two-tier business model, with the central bank at the core, but private agents (banks and payment service providers) interacting with users (e.g., performing customer onboarding, including KYC/AML functions). Almost all central bank CBDC explorers I follow have dismissed the direct model in which the central bank does all of the "donkey work". However, it should be noted that almost all of the other 60% or so of respondents were simply undecided about the business model at this point. The preference for a two-tier model is strongest among central banks for which financial disintermediation is a top concern. Bringing banks - and other PSPs - on board would encourage them to accept CBDCs. A two-tier model would facilitate collaboration and potentially draw on synergies with the private sector.

"Motivated by the regional bank crisis of 2023, we model the impact of interest rates on the liquidity risk of banks. Prior work shows that banks hedge the interest rate risk of their assets with their deposit franchise: when interest rates rise, the value of the assets falls but the value of the deposit franchise rises. Yet the deposit franchise is only valuable if depositors remain in the bank. This creates run incentives for uninsured depositors. We show that a run equilibrium is absent at low interest rates but appears when rates rise because the deposit franchise comes to dominate the value of the bank. The liquidity risk of the bank thus increases with interest rates. We provide a formula for the bank's optimal risk management policy. The bank should act as if its deposit rate is more sensitive to market rates than it really is, i.e., as if its "deposit beta" is higher. This leads the bank to shrink the duration of its assets. Shortening duration has a downside, however: it exposes the bank to insolvency if interest rates fall. The bank thus faces a dilemma: it cannot simultaneously hedge its interest rate risk and liquidity risk exposures. The dilemma disappears only if uninsured deposits do not contribute to the deposit franchise (if they have a deposit beta of one). The recent growth of low-beta uninsured checking and savings accounts thus poses stability risks to banks. The risks increase with interest rates and are amplified by other exposures such as credit risk. We show how they can be addressed with an optimal capital requirement that rises with interest rates."

Stablecoins are a venerable and well-respected part of the history of US banking! Previously, the issuers were called "wildcat banks," and the tokens were pieces of paper. The wildcat banking era, more politely called the "free banking era," ran from 1837 to 1863. Banks at this time were free of federal regulation - they could launch just under state regulation. Under the gold standard in operation at the time, these state banks could issue notes, backed by specie - gold or silver - held in reserve. The quality of these reserves could be a matter of some dispute. The wildcat banks didn't work out so well. The National Bank Act was passed in 1863, establishing the United States National Banking System and the Office of the Comptroller of the Currency - and taking away the power of state banks to issue paper notes.

"This paper studies how introducing a central bank digital currency (CBDC) can affect the banking system. We show that CBDC need not reduce bank lending unless frictions and synergies bind deposits and lending together. We then estimate a dynamic banking model to quantify the importance of these frictions and synergies for the impact of a CBDC on the banking system. Our counterfactual analysis shows that a CBDC can replace a significant fraction of bank deposits, especially when it pays interest. However, CBDC has a much smaller impact on bank lending because banks can replace a large fraction of any lost deposits with wholesale funding. Substitution to wholesale funding makes banks' funding costs more sensitive to changes in short-term rates, increasing their exposure to interest rate risk. We also show that a CBDC amplifies the impact of monetary policy shocks on bank lending."

The European Central Bank (ECB) published a paper that explores the relationship between banks, and stablecoins and their issuers, focusing on the mechanical effects on banks' capital and liquidity ratios when issuing stablecoins or collecting deposits from stablecoin issuers. The analysis reveals that converting retail deposits into stablecoin issuers' deposits weakens a bank's liquidity coverage ratio (LCR), turning a retail deposit into a wholesale deposit, even when these funds are reinvested in high-quality liquid assets (HQLA). If a credit institution issues its own stablecoins, the impact on its LCR depends on whether it can identify the stablecoin holders; unknown holders weaken the LCR which could incentivize banks to issue stablecoins where they can continually identify the holders to benefit from more favorable liquidity treatment. The study also finds that when retail customers of bank A buy a stablecoin issued by a non-bank that keeps reserves at bank B, both banks could see an unexpected decline in their liquidity ratios, as bank A loses stable retail deposits and bank B gains volatile wholesale deposits.

Wyoming recently awarded its second special-purpose depository institution (SPDI) charter to Avanti Bank. One of the most notable products that Avanti intends to offer is the "Avit" stablecoin "disruptor." Avanti Bank's Avit will be a tokenized, programmable US dollar. Becasue Avit will be issued by, and be a direct obligation of, a bank, making it an electronic version of a traditional bank note. This means the Avit can be used in software applications like other stablecoins but may be considered more reliable than traditional stablecoins because users can trust that the deposits backing the Avit are held in the same state chartered financial institution that issued the instrument. Critically, if the Avit is a bank note it is also exempt from regulation as a security by the SEC. One legal wrinkle is that Article 3 of the Uniform Commercial Code (UCC), which governs bank notes, has never before been directly extended to electronic negotiable instruments such as digital bank notes. Nevertheless, there is an argument that Article 3 provides the necessary legal framework for banks to issue a variety of electronic negotiable instruments, including digital certificates of deposits. One could argue that a bank issuing a product with features similar to a stablecoin is really just a new form of a traditional bank activity.

The USDF Consortium, an association of FDIC-insured financial institutions, launched, with a mission to build a network of banks to further the adoption and interoperability of a bank-minted USDF stablecoin. USDF will be minted exclusively by U.S. banks and will be redeemable on a 1:1 basis for cash from a Consortium member bank. The Consortium's founding bank members include New York Community Bank, NBH Bank, FirstBank, Sterling National Bank, and Synovus Bank.

"We use a microeconomic banking model to investigate the effects of introducing an economy-wide, account-type CBDC on a bank's loan supply and its failure risk. Given that a CBDC is expected to lower the cost of liquidity circulation and become a strong substitute for demand deposits, both the loan supply and the bank failure risk increase. These increases are countered by subsequent increases in the rates of return on term deposits and loans, which, in turn, reduce the loan supply and thus bank failure risk. These offsetting forces lead to no significant change in banking, as long as the rate of return on loans is below a certain threshold. However, once the rate is above the threshold, bank failure risk increases, thereby undermining banking stability. The problem is more pronounced when the degree of pass-through of funding costs to the loan rate is high and the profitability of a successful project is low. Our results imply that central banks wishing to introduce an economy-wide, account-type CBDC should first monitor yields on bank loans and consider policy measures that induce banks to maintain adequate liquidity reserve levels."

"Amerant Bank, ConnectOne Bank and Primis Bank have joined founding members New York Community Bank, Synovus Bank, NBH Bank, First Bank and Webster Bank in the USDF Consortium, the group said in a statement Wednesday. Investment bank Piper Sandler will offer guidance through the process as the consortium grows."

"The lesson might be that there are some industries that are bad to bank. Imagine that it was 2021, and someone was like "do you want to start the Bank of Crypto? What about the Bank of Venture-Backed Tech Startups?" You'd be tempted, right? Those industries had so much money! They seemed cool. If you were their bank - if you were the specialized bank that exclusively focused on those industries - influencers on Twitter would tweet nice things about you, and you'd get invited to fancy parties. Also, as their bank, you'd probably find a way to get a cut of growing industries with lots of potential. Provide banking services to tech startups, get warrants in those startups, get rich when they go public. Provide banking services to crypto exchanges, start some sort of blockchain-based payment network, get rich through the magic of saying "blockchain" a lot. "

However, the Federal Reserve has been blocking non-lending banks from accessing Fed payment systems, though, which means the "safe banks" either cannot operate at all or cannot provide the very "safe banking" services that consumers want. Custodia Bank is one such bank, and its CEO Caitlin Long makes an interesting point about the soon-to-be-launched FedNow fast payments platform: "In the thick of today's social media-accelerated, online-banking accelerated banking crisis, the "borrow short-term and lend long-term" model is less stable than it has ever been. And it's about to become even less stable - because the speed of money movement in the U.S. is scheduled to accelerate this July, when the new FedNow payment system comes online. Intended to replace Fedwire, FedNow will allow depositors to access their bank deposits 24/7/365. Just imagine how much worse today's banking crisis would be if panicked depositors could move their funds during the news-filled weekends. [

"The crisis that has engulfed crypto in the last year is a crisis of fractional reserve banking. Silvergate Bank and Signature Bank NY were fractional reserve banks. So too were Celsius Network, Voyager, BlockFi, Babel Finance and FTX. And still standing are the crypto fractional reserve banks Coinbase, Gemini, Binance, Nexo, MakerDAO, Tether, Circle, and, I would argue, every one of the DeFi staking pools. All of these are doing some variety of fractional reserve banking. Custodia Bank and Kraken Finance claim to be full-reserve banks - but 100% reserve backing for deposits is both hard to prove and not a guarantee of safety. What do I mean by "fractional reserve banking"? My definition might surprise you. For me, fractional reserve banking simply means that the composition of a bank's assets is less liquid than that of its liabilities."

The Reserve Bank of India (RBI) is reportedly in talks with fintech companies and state-controlled banks about a trial run of a central bank digital currency (CBDC) with a possible rollout by the end of the fiscal year ending March 31, 2023. The list of fintechs that the RBI is consulting include US-based FIS, plus four state-run banks to run a pilot CBDC project (State Bank of India, Punjab National Bank, Union Bank of India and Bank of Baroda).

This paper by the Bank of Canada's Scott Hendry and Yu Zhu confirms the validity of central bank concerns that wide adoption of a private digital currency and decline in the use of central bank money may undermine monetary sovereignty. The analysis is based on a theoretical model in which fiat money and the digital currency differ in the types of transactions that they can serve, with the latter dominating in online transactions. Although the central bank wants to maintain the value of the fiat money by keeping low inflation in case households want to use the fiat money for transactions, a welfare-maximizing central bank would also want to encourage households to use e-money for transactions where e-money has an advantage. This can be achieved by raising inflation of fiat money since it is a substitute for e-money, and the incentive to raise inflation would dominate if the usage of fiat money was sufficently low. However, if the use of the central bank money becomes sufficiently low, this leads to high inflation and low welfare. The paper concludes that, to defend monetary sovereignty, the central bank should maintain or expand the use of central bank money, for example, by offering a central bank digital currency (CBDC) designed to be a perfect substitute for the private e-money.

Moody's Investors Service has downgraded the entire US banking sector following the events around Silicon Valley Bank, Signature Bank, and Silvergate Bank. "While these three banks were unique in their focus on crypto and venture capital/private equity - areas of non-bank finance that grew quickly during easy monetary policy - it is increasingly evident that other US banks are also facing ALM strains... Some US banks also have demonstrated weak governance and oversight of ALM risk."

The Saudi Central Bank (SAMA) launched its Open Banking Lab to provide banks and fintechs with a technical testing environment to enable them to develop, test, and certify their open banking services to ensure compatibility with the Open Banking Framework. The Open Banking Framework includes a comprehensive set of legislation, regulatory guidelines and technical standards based on international best practices to enable banks and fintechs to provide open banking services in the Kingdom.