Dallas Fed research warns tokenized deposits could drain $700B from traditional bank lending and raise borrowing costs.
Macro & Markets ·
The Dallas Federal Reserve estimates that a 10% increase in deposit-rate sensitivity—enabled by tokenized deposits and instant settlement—could reduce banks' capacity for interest-rate risk by approximately $700 billion in 10-year-equivalent terms. Tokenized deposits would allow customers to move funds rapidly in pursuit of higher yields, eroding the deposit "stickiness" that currently relies on frictions slowing fund transfers between banks. Banks responding to faster outflows may reduce longer-term lending or shift to wholesale debt funding, potentially raising borrowing costs for consumers and businesses, according to the Dallas Fed report.