Dallas Fed: Tokenized Deposits Could Cost U.S. Banks $700 Billion in Lending Capacity

Dallas Fed economists estimate that if tokenized deposits increase depositors' sensitivity to interest rates by 10%, U.S. banks' capacity to hold long-term interest rate risk could decrease by about $700 billion; if 10% of deposits flow out of banks early, this capacity could be reduced by approximately $580 billion. The estimates are based on the assumption that deposits stay in banks for an average of four years, with current "other deposits" supporting about 80% of the banking system's long-term interest rate exposure. Economists point out that tokenized deposits will put commercial bank funds on-chain, enabling programmable payments and real-time settlements, but they may also allow yield-seeking depositors to switch banks almost instantaneously. Smart contracts and AI agents could theoretically automate this process, weakening the "stickiness" of deposits, thereby increasing banks' funding costs and affecting consumer and business credit costs. Research from Brazil's instant payment network Pix shows that increased usage of the system has led local banks to hold more liquid assets and a decrease in the scale of credit intermediation. Currently, The Clearing House is developing an interoperable network for tokenized deposits that supports interbank clearing in collaboration with institutions such as U.S. Bank, Citigroup, and Wells Fargo.

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