Dallas Fed warns tokenized deposits could cut U.S. banks' capacity by $700 billion

Two Dallas Fed economists estimated that tokenized deposits could reduce U.S. banks' capacity to hold long-term interest-rate risk by about $700 billion if deposits become 10% more rate-sensitive. A separate scenario estimated a loss of about $580 billion if tokenization causes deposits to leave banks 10% sooner. The calculations assume deposits remain at a bank for an average of four years. The figures measure banks' capacity to support long-term interest-rate exposure when deposits become easier to move and less reliable for funding loans. The products are being developed as regulated alternatives to stablecoins. Preliminary data from Brazil's instant payment system indicates that faster, automated transactions can reduce credit intermediation. Levy and Ramaswamy estimated that other deposits, excluding large time deposits, support about $5.8 trillion of the banking system's roughly $7 trillion in long-term interest-rate exposure. They estimated that other deposits account for 80% of that exposure. Levy and Ramaswamy wrote that instant settlement would let deposit holders who prioritize yield switch banks almost instantaneously.