Tokenized Deposits Could Drain $700 Billion From Bank Lending, Dallas Fed Warns
The Dallas Fed says tokenized deposits could speed payments through real-time settlement, but wider adoption may make bank funding less stable. Because tokenized deposits can move instantly and may pay interest, depositors could switch banks more easily to chase better yields, weakening the “stickiness” that supports traditional deposit funding. That could raise deposit-rate sensitivity, shorten deposit lifetimes, and reduce banks’ willingness to hold longer-term fixed-rate assets. The report estimates that a 10% rise in deposit-rate sensitivity could cut banks’ interest-rate risk capacity by about $700 billion, while a 10% drop in deposits’ weighted average life could reduce maturity-transformation capacity by $580 billion. Banks might respond by relying more on term debt, which could make lending more like nonbank finance and increase borrowing costs.
