Dallas Fed economists warned that tokenized bank deposits could make funding less stable and potentially raise borrowing costs for US households and businesses.
Rosie Levy and Srini Ramaswamy said instant settlement, programmable deposits and AI agents could allow customers to move money between banks much faster in search of higher yields, making deposits more sensitive to interest rates and shortening how long funds remain at individual banks.
Their scenario analysis estimated that a 10% increase in deposit sensitivity to interest rates could reduce banks’ capacity to hold long-term loans and assets by about $700 billion, while a 10% reduction in deposit duration could lower that capacity by roughly $580 billion. The figures are not forecasts or direct estimates of lending declines.
Banks could respond by holding more reserves and US Treasurys or relying more heavily on longer-term wholesale debt. However, the economists said more expensive funding could ultimately translate into higher credit costs for consumers and businesses.
The warning comes as US banks accelerate development of blockchain-based networks for tokenized deposits, stablecoins and 24/7 settlement.
Rosie Levy and Srini Ramaswamy said instant settlement, programmable deposits and AI agents could allow customers to move money between banks much faster in search of higher yields, making deposits more sensitive to interest rates and shortening how long funds remain at individual banks.
Their scenario analysis estimated that a 10% increase in deposit sensitivity to interest rates could reduce banks’ capacity to hold long-term loans and assets by about $700 billion, while a 10% reduction in deposit duration could lower that capacity by roughly $580 billion. The figures are not forecasts or direct estimates of lending declines.
Banks could respond by holding more reserves and US Treasurys or relying more heavily on longer-term wholesale debt. However, the economists said more expensive funding could ultimately translate into higher credit costs for consumers and businesses.
The warning comes as US banks accelerate development of blockchain-based networks for tokenized deposits, stablecoins and 24/7 settlement.