Two economists at the Federal Reserve Bank of Dallas have warned that tokenized deposits could destabilize bank funding and push credit costs higher for American households and businesses, according to an analysis published by the institution.
The Core Warning
Economists Rosie Levy and Srini Ramaswamy argued that instant settlement capabilities could allow yield-seeking depositors to shift funds between banks far more rapidly than is currently possible. They noted that programmable deposit tokens, combined with agentic artificial intelligence, could automate those transfers, reducing the time deposits stay at any single institution and making them more sensitive to interest rate movements.
The pair ran two separate scenarios to illustrate the potential scale of the impact. In the first, if deposits became 10% more sensitive to interest rates, banks’ capacity to hold long-term loans and other assets could fall by approximately $700 billion. In the second scenario, deposits remaining at banks for 10% less time could cut that capacity by around $580 billion. Both figures are expressed in 10-year equivalents, represent scenarios rather than forecasts, and do not translate into a dollar-for-dollar reduction in lending.
How Banks Could Respond
Levy and Ramaswamy outlined two likely responses from lenders facing more volatile deposit bases. Banks could hold larger pools of highly liquid assets, such as reserves and US Treasuries, to absorb sudden outflows. Alternatively, they could lean more heavily on term debt to fund their lending books. The second route, they cautioned, would almost certainly raise the cost of credit for consumers and businesses, since wholesale debt financing is more expensive than traditional deposit funding.
A Real-World Comparison
The economists pointed to Brazil’s Pix instant-payment network as a partial analogy, while acknowledging it is not equivalent to tokenized deposits. A 2025 study found that heavier use of Pix led Brazilian banks to hold more liquid assets and reduced the overall level of credit intermediation in the market.
Banks Press Ahead With Tokenized-Deposit Networks
The Dallas Fed analysis arrives as the US banking industry accelerates its own blockchain-based deposit infrastructure. On Tuesday, 39 US state banking associations formed the BankChain Alliance, a coalition aimed at building a nationwide network to support tokenized deposits, stablecoins and automated settlement.
Separately, The Clearing House is developing a competing network backed by JPMorgan Chase, Bank of America, Citi, BNY and Wells Fargo. Cross-border connectivity is also advancing: on August 20, Standard Chartered and HSBC completed a live cross-border transaction through Swift’s blockchain ledger, linking their separate systems and recording settlement obligations before processing through existing payment rails.
The two developments sit awkwardly together. A Federal Reserve bank is modelling the systemic cost of instant, programmable deposits in the same week that most of the American banking industry commits to building them.
