Dallas Fed: Tokenized deposits may cut bank lending by $700B

Dallas Fed warns tokenized deposits could cut banks’ long-term risk capacity by $700B, destabilize funding, and raise borrowing costs for consumers and businesses.

Recent research from Dallas Fed economists warns that tokenized deposits could significantly impact U.S. banks’ ability to manage long-term interest-rate risk and provide credit. If tokenized deposits make savers just 10% more sensitive to interest rates, banks’ capacity to hold long-term interest-rate exposure could drop by about $700 billion. Likewise, a 10% reduction in the average life of deposits could shrink banks’ maturity transformation capacity by roughly $580 billion. Tokenized deposits—commercial bank deposits represented on blockchains—enable instant settlement, programmable payments, and 24/7 liquidity movement. These features could allow depositors and AI agents to move funds rapidly in search of higher yields, reducing deposit stickiness and making bank funding less stable. As a result, banks may need to raise deposit rates, increase liquidity buffers, or issue more wholesale debt, potentially raising borrowing costs for consumers and businesses. While major banks and payment networks are developing tokenized deposit systems, the Dallas Fed cautions these innovations could reduce credit available to households and companies and alter the traditional role of deposits in supporting long-term lending.