Tokenized deposits could reduce the stability of bank funding and push up credit costs for U.S. households and businesses, according to a working paper by economists at the Federal Reserve Bank of Dallas. The authors, Rosie Levy and Srini Ramaswamy, argue that instant settlement enabled by programmable deposit tokens and agentic artificial intelligence could accelerate depositor flight to higher-yielding banks. This heightened sensitivity to interest rates would, in turn, shrink banks’ capacity to hold long-term assets.
The economists estimate that a 10% increase in deposit rate sensitivity would reduce banks’ asset-holding capacity by roughly $700 billion over a decade, measured in 10-year equivalents. A separate scenario in which deposits remain at banks for 10% less time would cut capacity by about $580 billion. The authors emphasize that these are scenario-based calculations, not forecasts, and do not imply direct reductions in lending volumes.
U.S. banks are already developing infrastructure to support tokenized deposits. On Tuesday, 39 state banking associations launched the BankChain Alliance to create a nationwide network for tokenized deposits, stablecoins, and automated settlement. A separate initiative, led by The Clearing House and backed by JPMorgan Chase, Bank of America, Citi, BNY Mellon, and Wells Fargo, is also in development.
Institutions have begun testing cross-border connectivity for tokenized-deposit systems. On Aug. 20, Standard Chartered and HSBC executed a live transaction using Swift’s blockchain ledger, linking their separate systems and recording obligations before final settlement through existing payment rails.
To offset the risks of more volatile deposits, banks may expand holdings of highly liquid assets such as reserves and U.S. Treasurys, the economists note. They also suggest greater reliance on term debt to sustain lending portfolios, though this would likely raise funding costs for borrowers. The authors draw a comparison to Brazil’s Pix instant-payment system, citing a 2025 study that found increased Pix usage led banks to hold more liquid assets and reduced credit intermediation.
