Tokenized deposits could cut U.S. bank lending capacity by $580 billion: report

Tokenized deposits have raised concerns that faster movement of bank money could reduce U.S. banks’ capacity to fund long term loans by hundreds of billions of dollars if the technology reaches widespread adoption. Summary Dallas Fed researchers said tokenized deposits could shorten how long customer funds remain at banks and make deposits more sensitive to interest rates. A 10% reduction in the average life of deposits could cut U.S. banks’ maturity transformation capacity by about $580 billion. Faster tokenized transfers could increase deposit volatility and push banks to hold more liquid assets such as reserves and U.S. Treasuries. Major banks are already developing shared tokenized deposit networks as blockchain based payment infrastructure moves toward wider use. According to an Aug. 25 research paper by Federal Reserve Bank of Dallas economists Rosie Levy and Srini Ramaswamy, large scale adoption of tokenized deposits could shorten the period that customer funds remain at banks and make those deposits more sensitive to interest rates. The authors said both effects could weaken banks’ ability to use deposits to fund assets with longer maturities. The paper examines the potenti...