Dallas Fed: tokenized deposits could cost banks $700B in capacity

Tokenized deposits could strip U.S. banks of about $700 billion in capacity to hold long-term interest-rate risk, according to two Dallas Fed economists. Rosie Levy and Srini Ramaswamy reached that figure by modeling a scenario in which tokenization makes depositors 10% more sensitive to interest rates. That's a plausible outcome once moving money between banks becomes as easy as a blockchain transaction, CoinDesk reported.

A second scenario in the same research produces a smaller but still substantial number. If tokenization causes deposits to leave banks 10% sooner than they do today, banks could lose about $580 billion of capacity to absorb the interest-rate risk tied to long-term loans and securities.

Both estimates rest on a baseline assumption: deposits currently stay at a bank for an average of four years. That stickiness lets banks fund thirty-year mortgages and other long-duration loans with short-term deposits, a mismatch the banking system has managed for decades. Levy and Ramaswamy calculated that "other deposits," a category that excludes large time deposits, support about $5.8 trillion, or 80%, of the banking system's roughly $7 trillion in long-term interest-rate exposure. Shrink that base and the lending it supports shrinks with it.

Tokenized deposits put commercial-bank money on a blockchain, enabling programmable payments and real-time settlement while the funds stay inside the regulated banking system. Those same features weaken the friction that currently keeps deposits parked. Depositors chasing yield could move funds between banks almost instantly, and smart contracts or agentic AI could automate the switching entirely, without the depositor taking any direct action.

• Lost capacity if depositors get 10% more rate-sensitive: about $700 billion
• Lost capacity if deposits leave 10% sooner: about $580 billion
• Average deposit duration assumed in the models: four years
• "Other deposits" share of long-term interest-rate exposure: $5.8 trillion of $7 trillion, or 80%

Banks facing faster deposit outflows have three levers: pay higher rates to retain deposits, hold more reserves and Treasuries, or lean more heavily on term debt to fund existing loans. That last option carries a cost that gets passed downstream. If banks turn to pricier debt to keep lending steady, the economists wrote it would likely "adversely impact the cost of credit for consumers and businesses."

Brazil offers an early real-world comparison. A 2025 study of the country's instant payment network, Pix, found that heavier usage pushed banks toward holding more liquid assets, particularly government bonds, while reducing how much credit they extended. Banks also raised the share of subprime loans in what remained of their loan books, chasing higher returns to offset the squeeze.

Tokenized deposits remain early-stage and hard to move between issuers today. The Clearing House and banks including Bank of America, Citi, and Wells Fargo are already building an interoperable network for cross-bank clearing and 24/7 settlement, a project Intokened covered when reporting on how U.S. banks are pushing back against stablecoin yield competition more broadly. Whether that infrastructure closes the funding gap Levy and Ramaswamy describe, or accelerates it, depends on how fast depositors adopt it once it works.

Nothing here should be taken as financial advice — just information to consider.