Dallas Fed economists warn tokenized deposits may increase US credit costs

Tokenized deposits may destabilize bank funding

Economists at the Federal Reserve Bank of Dallas have raised concerns that tokenized deposits could make bank funding less stable. Tokenized deposits are digital versions of traditional bank deposits that can be moved instantly using blockchain technology—a digital ledger that records transactions across many computers.

The economists, Rosie Levy and Srini Ramaswamy, said that instant settlement and programmable features could allow customers to switch banks more quickly in search of higher interest rates. They also noted that artificial intelligence (AI) could automate these transfers, reducing the time deposits stay at any single bank.

Potential impact on lending capacity

The analysis presented two scenarios to illustrate how increased deposit sensitivity to interest rates could affect banks. If deposits became 10% more sensitive to interest rate changes, banks’ ability to hold long-term loans and other assets could drop by about $700 billion. If deposits stayed at banks for 10% less time, that capacity could shrink by roughly $580 billion. These figures are expressed in 10-year equivalents and do not represent direct cuts to lending.

The economists clarified that these are hypothetical scenarios, not forecasts, and do not mean banks would immediately reduce lending by those amounts.

How banks might respond

Levy and Ramaswamy suggested banks could adapt by holding more liquid assets, such as reserves or U.S. Treasury bonds. They also warned that banks might rely more on term debt—borrowing money for a set period—to maintain their lending portfolios. However, this shift could increase credit costs for consumers and businesses.

The authors compared the situation to Brazil’s Pix instant-payment system, which has been linked to reduced credit intermediation as banks hold more liquid assets.

US banks build tokenized deposit networks

Despite these concerns, U.S. banks are actively developing networks for tokenized deposits. On August 26, 2026, 39 state banking associations formed the BankChain Alliance to create a nationwide network supporting tokenized deposits, stablecoins (digital tokens pegged to a stable asset like the U.S. dollar), and automated settlement.

Major banks like JPMorgan Chase, Bank of America, Citi, BNY, and Wells Fargo are backing a separate network developed by The Clearing House. Additionally, Standard Chartered and HSBC recently completed a live cross-border transaction using Swift’s blockchain ledger, linking their tokenized deposit systems.

What is confirmed

• The Federal Reserve Bank of Dallas published an analysis on the potential risks of tokenized deposits.
• Economists Rosie Levy and Srini Ramaswamy authored the report.
• The analysis presents scenarios, not forecasts, about how tokenized deposits could affect bank funding stability.
• 39 U.S. state banking associations formed the BankChain Alliance to develop a nationwide tokenized deposit network.
• Major banks are building separate networks for tokenized deposits and have completed cross-border transactions using blockchain technology.

What is still unclear

• The exact timeline for widespread adoption of tokenized deposits in the U.S. banking system.
• Whether banks will adjust their lending practices in response to more volatile deposits.
• How regulators might address the potential risks highlighted in the Dallas Fed analysis.

Why this matters for borrowers

The analysis suggests that if tokenized deposits lead to less stable bank funding, banks may pass on higher costs to borrowers. This could mean higher interest rates on loans for households and businesses. However, the economists emphasized that their findings are based on hypothetical scenarios, not guaranteed outcomes.

Sources

• Cointelegraph
• Dallas Fed Research Analysis