The Dallas Fed study says tokenized deposits could reduce banks' ability to absorb long-term rate risks by $580 billion, raising borrowing costs.
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The Federal Reserve Bank of Dallas published a study warning that tokenized deposits could shrink the US banking sector's capacity to absorb long-term interest rate risks by $580 billion. Real-time settlement and blockchain programmability would let users move capital almost instantly in search of higher yields, cutting the average duration of deposits at traditional banks, the report said.
Commercial deposits underpin roughly 80% of banks' exposure to long-term mortgage and corporate loans. If deposit durations shorten, banks would have to raise rates on liabilities or resort to wholesale debt to keep liquidity. Either path drives up borrowing costs for households and businesses, according to the study.
The report noted that smart contracts and AI agents could accelerate capital flows, making deposit outflows less predictable. Major financial institutions are already pushing ahead with tokenized infrastructure. The Clearing House and Citi are among the groups developing 24/7 payment systems, the study said. Bank of America is also working on tokenized deposit projects.
The study said regulators will need to adjust liquidity rules so that innovation does not constrain credit. The $580 billion estimate represents the potential erosion in banks' ability to hold long-term fixed-rate assets if deposit maturities shorten. The study did not specify when the impact might materialize.
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