Dallas Fed economists say tokenized deposits could raise funding costs

Dallas Fed economists Rosie Levy and Srini Ramaswamy said tokenized deposits could make bank funding less stable and raise credit costs for U.S. households and businesses. They estimated that a 10% increase in deposit interest-rate sensitivity could reduce banks' capacity to hold long-term loans and other assets by about $700 billion. A separate scenario found that deposits remaining at banks for 10% less time could reduce that capacity by about $580 billion. Both figures use 10-year equivalents and do not represent direct or dollar-for-dollar reductions in bank lending. Levy and Ramaswamy said instant settlement could let depositors seeking higher yields switch banks more quickly. Programmable deposit tokens and agentic artificial intelligence could automate those transfers. Shorter deposit stays could make bank funding more sensitive to interest rates. The calculations are scenarios rather than forecasts. U.S. banks are developing shared blockchain networks that could move tokenized deposits around the clock while keeping customer funds within the regulated banking system. Thirty-nine U.S. state banking associations formed the BankChain Alliance on Tuesday to develop a nationwide network for tokenized deposits, stablecoins and automated settlement. The Clearing House is developing a separate network backed by JPMorgan Chase, Bank of America, Citi, BNY and Wells Fargo. Standard Chartered and HSBC completed a live cross-border transaction through Swift's blockchain ledger on Aug. 20. The ledger linked the banks' separate systems and recorded their resulting obligations before settlement through existing payment infrastructure. Levy and Ramaswamy said banks could respond to more volatile deposits by holding larger portfolios of highly liquid assets. They identified reserves and U.S. Treasurys as examples. Banks could also rely more heavily on term debt to maintain their lending portfolios. Wholesale debt would likely increase credit costs for consumers and businesses. The economists cited Brazil's Pix instant-payment system as a potential comparison. They noted that Pix is not identical to tokenized deposits. A 2025 study found that heavier Pix use increased banks' liquid-asset holdings and reduced credit intermediation.