ECB Warns: A Digital Euro Could Drain Up to €700 Billion in a Severe Bank Run

A new simulation from the European Central Bank (ECB) reveals the potential systemic impact of a digital euro under extreme market stress. According to the study, up to €699 billion could flow out of commercial bank deposits into digital wallets in a full-scale “bank run” scenario — the equivalent of 8.2 % of all retail sight deposits across the eurozone.

While the central bank emphasizes that such an event remains theoretical, the findings illustrate both the transformative potential and the latent risks of introducing a sovereign digital currency into an already delicate financial ecosystem.

Simulating the Shock

The ECB modeled several liquidity stress tests to assess how quickly depositors might migrate funds to the digital euro under different conditions.

In the most severe case — with an individual holding limit of €3,000 per user — deposit flight could reach nearly €700 billion, putting pressure on banks’ liquidity buffers. Out of 2,025 institutions analyzed, 13 could breach regulatory liquidity requirements.

Under more moderate, “business as usual” conditions, however, the simulations show outflows closer to €100 billion — a level the banking system could absorb without systemic disruption. The ECB also explored smaller caps of €500, €1,000, and €2,000, all of which resulted in proportionally lower outflows.

The conclusion is clear: holding limits work. They are the key lever for balancing digital euro accessibility with financial stability.

Implications for Banks and Financial Equilibrium

In addition to deposit migration risk, the ECB’s analysis indicates that widespread adoption of the digital euro could compress bank profitability. A scenario with a €3,000 cap would reduce the average return on equity by approximately 30 basis points, though the impact would vary significantly by country and business model.

Still, the study suggests that these effects would remain manageable. The gradual decline of cash usage and the steady rise of digital payment adoption could offset part of the deposit erosion. Moreover, the ECB envisions design features — such as non-interest-bearing digital wallets and transaction caps — that could mitigate excessive outflows.

A Necessary Balancing Act

The findings highlight the delicate trade-off at the heart of Europe’s monetary transformation: how to build a digital currency that strengthens trust without destabilizing the banking system that underpins it.

A digital euro promises greater efficiency, faster settlement, and enhanced cross-border usability. Yet, as the ECB’s simulation underscores, its architecture must be carefully calibrated to avoid triggering unintended liquidity drains.

The message from Frankfurt is both cautionary and constructive: the digital euro can be introduced safely — but only if regulatory design, monetary prudence, and systemic foresight advance in lockstep.

Sources: Investing.com, ECB Report
Author: Brian LECLERE