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Dallas Fed economists
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- DeepHorus
Tokenized deposits, a new form of programmable digital money, could destabilize US bank funding and raise borrowing costs for households and businesses, according to a new analysis by economists at the Federal Reserve Bank of Dallas. The economists, Rosie Levy and Srini Ramaswamy, argue that the instant, automated nature of these instruments could make traditional bank deposits far more volatile.
Their concern centers on how tokenized deposits function. Unlike standard deposits, these digital tokens on a blockchain can settle instantly and can be programmed to move automatically. This could allow depositors, potentially guided by AI agents, to switch banks in a fraction of a second to seek higher yields, drastically reducing the stability of bank funding.
The economists quantified the potential impact through illustrative scenarios. They estimated that if deposits became just 10% more sensitive to interest rates, banks' capacity to hold long-term assets like loans could fall by approximately $700 billion. In a separate scenario where deposits remained at banks for 10% less time, that capacity could shrink by about $580 billion, measured in 10-year equivalents.
This analysis arrives as the US banking sector actively builds infrastructure for tokenized deposits. On Tuesday, 39 state banking associations formed the BankChain Alliance to create a nationwide network. Separately, a consortium led by JPMorgan Chase, Bank of America, and other major banks is developing its own network through The Clearing House.
The Dallas Fed authors suggest banks would need to adapt to such volatility by holding more liquid assets like reserves and US Treasuries. They also predict a heavier reliance on term debt for funding, a shift that would likely translate into higher interest rates on loans for consumers and businesses.
The researchers draw a parallel to Brazil's Pix instant-payment system, citing a 2025 study that found increased Pix usage led banks to hold more liquid assets and reduce credit intermediation. As regulators like the SEC mull guidance for digital assets, this research highlights a key risk in the evolution of modern banking, underscoring the delicate balance between financial innovation and systemic stability.
