Dallas Fed: Tokenized Deposits May Cut Bank Lending by $700 Billion

Tokenized Deposits Could Undermine Bank Stability, Dallas Fed Warns

Tokenized deposits, while potentially enabling faster payments, could also destabilize bank funding, according to a new report from the Dallas Federal Reserve. The study, released Tuesday, explores the implications of widespread adoption of this technology on bank liquidity and the practice of maturity transformation—where banks use demandable deposits to fund longer-term loans.

The report highlights that advancements in distributed ledger technology, most notably blockchain, have paved the way for digital payment infrastructure and real-time settlement. While stablecoins have attracted significant attention and regulatory scrutiny both domestically and internationally, tokenized deposits have received comparatively less focus.

Unlike stablecoins such as USDT and USDC, tokenized deposits are regulated and can offer interest payments. However, the Dallas Fed report cautions that features like instant settlement, smart contracts, and agentic artificial intelligence could empower customers to more easily seek higher yields, thereby diminishing the “stickiness” of current deposits.

“Sticky deposits rely in part on the existence of frictions preventing rapid reallocation from one bank to another,” the agency stated. “Instant settlement would allow deposit holders who prioritize yield to switch banks almost instantaneously.”

The prospect of faster deposit outflows and increased sensitivity to interest rate fluctuations could lead banks to become more hesitant in holding longer-term, fixed-rate assets. The Dallas Fed estimates that a 10% increase in deposit-rate sensitivity could reduce banks’ capacity to manage interest-rate risk by approximately $700 billion in 10-year-equivalent terms.

Furthermore, the authors calculated separately that a 10% reduction in the weighted average life of deposits could diminish the banking system’s maturity-transformation capacity by $580 billion.

“Alternatively, banks could strive to leave the composition of lending close to unchanged by altering their liabilities in other ways,” the report suggests. “This would likely include greater reliance on term debt issuance; on the margin, the economics of such lending activity funded by wholesale debt would resemble those of non-bank financial firms and would thus likely adversely impact the cost of credit for consumers and businesses.”

This report emerges amid a growing wave of tokenized payment experiments by financial institutions. In October 2025, Custodia and Vantage launched a U.S. tokenized-deposit network. Barclays was reportedly exploring tokenized deposits and stablecoin payments as of February 2026, and BMO announced plans in March for round-the-clock tokenized cash settlement in collaboration with CME Group and Google Cloud.

More recently, in July, the global payment system Swift revealed a pilot program involving 17 international banks to facilitate the transfer of tokenized deposits outside of standard banking hours. However, final settlement in this pilot would still be contingent on legacy payment systems operating during business hours.