Tokenized deposits could make depositors more rate-sensitive, forcing banks to raise rates, Dallas Fed economists warn. Widespread adoption may shrink bank maturity transformation capacity by $580B.
Tokenized deposits could make it easier for depositors to chase higher interest rates, forcing banks to raise their own rates to remain competitive, two Federal Reserve Bank of Dallas economists wrote in a Tuesday blog post.
The post, written by Rosie Levy and Srini Ramaswamy, warned that the instant nature of tokenized transfers would increase deposit volatility and uncertainty around outflows. If the weighted average life of deposits declines by 10%, the industry's maturity transformation capacity would shrink by $580 billion, they estimated. A 10% rise in the price sensitivity of deposits could cut banks' duration risk appetite by $700 billion.
"Given the real-time, instant nature of tokenized deposit transfers, meaningful adoption would likely increase both the volatility of deposit balances and uncertainty around potential outflows during the normal course of business," Levy and Ramaswamy wrote.
The economists pointed to Brazil's Pix instant payment system, which has pushed banks to hold more liquid assets as outflows became faster. Tokenized deposits, which settle on a blockchain around the clock, could create a similar dynamic, they said.
"Widespread adoption of tokenized deposits could have meaningful consequences for banks, but there may be broader implications too," the economists wrote. They called on market participants and policymakers to consider the effects on payment systems, monetary policy transmission, potential asymmetric impacts across bank sizes, and the role of the central bank as lender of last resort.
The warning comes as several major U.S. banks push forward with tokenized deposit plans. JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and other large commercial banks said in June they plan to launch a shared tokenized deposit network in the first half of 2027. The network would connect traditional payment rails with digital asset infrastructure, allowing tokenized deposits to settle instantly on a blockchain.
Wells Fargo separately hopes to launch tokenized deposits for corporate and commercial customers this fall, the bank said in early August.
The Bank for International Settlements, in its Project Agorá, has shown that tokenized commercial bank deposits can be combined with tokenized central bank reserves on a shared platform, a milestone announced in May.
The Dallas Fed economists' analysis points to a tension: the same technology that makes deposits more efficient for customers could also make them less stable for banks. If depositors can move funds instantly, banks may need to offer higher rates or hold more liquid assets, squeezing net interest margins.
The $580 billion and $700 billion figures represent the impact of a 10% change in each variable, not a forecast. The economists said the actual impact would depend on adoption speed and the range of services tokenized deposits offer.
Smaller banks could face a bigger challenge. The economists noted potential asymmetric effects across bank sizes, as larger institutions have more diversified funding sources and can offer a broader suite of services to retain deposits. Community banks, which rely heavily on core deposits, could see the most pressure.
The monetary policy implications could be far-reaching. If deposit pricing becomes more responsive to market rates, the transmission of Fed rate changes could accelerate, altering how quickly higher rates feed into lending costs.
For banks with a large deposit base, like Wells Fargo, the shift could be material. Wells Fargo has an Alpha Score of 60, labeled Moderate, in the Financials sector. WFC stock page
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