Tokenized deposits have the potential to undermine the stability of bank funding and push up the cost of credit for US households and businesses, according to a recent analysis by Federal Reserve Bank of Dallas economists Rosie Levy and Srini Ramaswamy.
Instant settlement and deposit sensitivity
Levy and Ramaswamy stated that instant settlement offered by tokenized deposits could enable depositors to move their funds between banks more rapidly in pursuit of better yields. As a result, programmable deposit tokens combined with agentic artificial intelligence might automate these transfers, reducing the length of time deposits remain at individual institutions and making balances more sensitive to shifts in interest rates.
The economists developed several scenarios to illustrate the potential impact. They estimated that if deposit sensitivity to interest rates were to increase by 10%, banks’ capacity to hold long-term loans and other assets could fall by approximately $700 billion over a 10-year horizon. In another scenario, if deposits stayed at banks for 10% less time, the decrease in balance sheet capacity would be about $580 billion over the same period. These calculations are intended as illustrative scenarios and do not equate to direct reductions in bank lending volume, but they highlight the scale of possible shifts.
Instant settlement enabled by tokenized deposits, coupled with programmable tokens and AI-driven automation, could lead to faster inter-institutional transfers, making bank deposits more responsive to changing interest rates and potentially less stable over time.
Amid these risks, US banks have increased efforts to develop shared blockchain networks designed to enable around-the-clock movement of tokenized deposits within the regulated financial sector.
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AAPLBanks ramp up blockchain infrastructure
Thirty-nine state banking associations launched the BankChain Alliance on Tuesday, aiming to create a nationwide network to support tokenized deposits, stablecoins, and automated settlement. Alongside this, The Clearing House is building a separate blockchain solution, with backing from major financial institutions including JPMorgan Chase, Bank of America, Citi, BNY, and Wells Fargo.
Banks are also advancing cross-institution connectivity for tokenized deposits. On August 20, Standard Chartered and HSBC completed a cross-border transaction using Swift’s blockchain ledger, which linked their systems and recorded obligations ahead of settlement through established payment channels.
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Managing volatility and liquidity
Levy and Ramaswamy suggested that, if volatility in deposits increases, banks may respond by increasing their holdings of highly liquid assets such as reserves and US Treasurys. They also proposed that more institutions might turn to term debt markets to secure funding for their loan portfolios, though this approach would likely result in higher credit costs for both consumers and companies.
The economists referenced the impact of Brazil’s Pix instant-payment system—which, while not identical to tokenized deposits, provides a point of comparison. According to a 2025 study, increased use of Pix prompted Brazilian banks to hold larger volumes of liquid assets and reduced their activities in credit intermediation.
As banks adapt to the evolving payment landscape, they may increasingly rely on short-term, liquid holdings and shift some funding needs to wholesale debt markets—a process that could ultimately make consumer and business loans more expensive.
