Dallas Fed Says Tokenized Deposits Could Reduce US Banks’ Lending Capacity by Up to $700 Billion
Summary
- The Federal Reserve Bank of Dallas said broader adoption of tokenized deposits could reduce US banks’ lending capacity by as much as $700 billion.
- It said tokenization could make depositors more interest-rate sensitive and enable real-time transactions, accelerating deposit transfers and reducing banks’ capacity to bear long-term interest-rate risk.
- It also said that in Brazil’s Pix case, local banks increased their holdings of liquid assets such as government bonds and scaled back their loan intermediation function.
Forecast Trend Report by Period
The spread of tokenized deposits could reduce US banks’ lending capacity by as much as $700 billion, according to an analysis.
CoinDesk reported on August 25 that the Federal Reserve Bank of Dallas said in a recent report that tokenization could make bank deposits less stable.
The Dallas Fed highlighted the risk that depositors could move money more easily in search of higher interest rates as tokenization spreads. If tokenization enables real-time transactions, customers could shift deposits almost instantly when another bank offers a better rate.
The report assumed an average deposit life of four years. It found that if tokenization makes depositors 10% more sensitive to interest rates, banks’ capacity to absorb long-term interest-rate risk could fall by about $700 billion.
Under a separate assumption that the expected time deposits remain at banks shrinks by 10%, that capacity would decline by about $580 billion.
The report also said a similar pattern was observed in Brazil’s Pix real-time payment network. As Pix usage increased, local banks raised their holdings of liquid assets such as government bonds while scaling back their loan intermediation function.
