Dallas Fed warns tokenized deposits could strip $700 billion from U.S. banks' lending capacity
Economists at the Dallas Fed warn that the adoption of tokenized deposits could reduce the lending capacity of U.S. banks by hundreds of billions of dollars. The report suggests that instant settlement and programmable payments could make deposits less 'sticky,' leading to faster capital flight during periods of market stress.
Why it matters
The potential for tokenized deposits to disrupt traditional bank funding models poses a significant challenge for financial stability and the cost of credit for consumers.
That’s according to estimates from two Dallas Fed economists . A separate scenario found that if tokenization causes deposits to leave banks 10% sooner, banks could lose about $580 billion of capacity to absorb the interest-rate risk of long-term loans and securities, the economists estimated.
The calculations assume deposits remain at a bank for an average of four years. That makes the products banks are developing as regulated alternatives to stablecoins a potential constraint on their ability to fund long-term loans.
The figures measure how much long-term interest-rate exposure banks could support if tokenization makes deposits easier to move and less reliable as a source of funding for loans.
Rosie Levy and Srini Ramaswamy, the economists, estimated that “other deposits,” excluding large time deposits, support about $5.8 trillion, or 80%, of the banking system’s roughly $7 trillion in long-term interest-rate exposure.
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