Dallas Fed: Tokenized deposits may lift US borrowing costs

Tokenized deposits could make bank funding less “sticky,” potentially increasing borrowing costs for US households and businesses, according to an analysis by economists at the Federal Reserve Bank of Dallas. The concern is not about immediate, one-for-one changes to lending, but about how faster deposit movement—enabled by instant settlement and automated transfers—could reshape how banks manage liquidity and credit risk.

In a research note, economists Rosie Levy and Srini Ramaswamy argue that programmable deposit tokens combined with automated transfer mechanisms could allow customers seeking higher yields to switch banks more quickly. They estimate that if deposits became 10% more responsive to interest rates, banks’ capacity to hold long-term loans and other assets could decline by roughly $700 billion on a 10-year-equivalent basis. A separate scenario where deposits stayed at banks 10% less time implies a reduction of about $580 billion, expressed in the same 10-year-equivalent terms. These are scenario outcomes, not forecasts.

Key takeaways

• Tokenized deposits may increase deposit “rate sensitivity,” making funding more mobile when higher yields appear elsewhere.
• Instant settlement and automated transfers could shorten how long deposits remain at a given bank, reducing stability.
• Dallas Fed researchers estimate large liquidity and balance-sheet capacity effects under two 10% sensitivity/time scenarios, though they are not direct lending cuts.
• Banks are already building shared blockchain-style networks intended to move tokenized deposits within the regulated banking system.

Why instant settlement could destabilize funding

Levy and Ramaswamy’s central mechanism is straightforward: when settlement happens instantly, customers can react to rate differences faster. In traditional banking, moving deposits can take time, which can blunt how quickly funds shift across institutions. With programmable deposit tokens, deposits can be designed to integrate with automated processes—potentially powered by agentic artificial intelligence—that coordinate transfers with less manual friction.

The economists describe this as a shift in deposit behavior: deposits become more sensitive to interest rates and potentially less time-bound at a single bank. That matters because bank lending relies on relatively stable funding to support longer-duration assets.

Importantly, the authors stress that their numerical estimates are scenario-based. The changes are framed in terms of banks’ capacity to hold long-term loans and other assets, not as a direct “dollar-for-dollar” reduction in lending.

What the Dallas Fed scenarios imply for banks and borrowers

Under one scenario, the researchers assume deposits become 10% more sensitive to interest rates. Under another, deposits remain at banks for 10% less time. In both cases, they estimate reductions in banks’ capacity to hold long-term assets—about $700 billion and $580 billion, respectively, using 10-year-equivalent measures.

The analysis points to trade-offs banks could face when deposit stability declines. One response could be holding larger portfolios of highly liquid assets, such as reserves and US Treasurys, to better withstand faster outflows. Another could be leaning more on term debt to maintain the lending book.

But both adjustments can come with costs. Increasing reliance on wholesale funding or term debt typically raises funding expenses, and those higher costs can propagate into credit terms for borrowers—precisely the outcome Levy and Ramaswamy say could increase credit costs for US households and businesses.

From research to rollout: bank networks for tokenized deposits

The Dallas Fed concerns arrive as US banks accelerate plans for tokenized-deposit infrastructure. On Tuesday, 39 US state banking associations formed the BankChain Alliance, aiming to develop a nationwide network designed to support tokenized deposits, stablecoins, and automated settlement. Separately, The Clearing House is developing another network backed by major institutions including JPMorgan Chase, Bank of America, Citi, BNY, and Wells Fargo.

Banks have also begun connecting tokenized-deposit systems across organizations. On Aug. 20, Standard Chartered and HSBC completed a live cross-border transaction through Swift’s blockchain ledger. The reported design linked the two banks’ separate systems and recorded obligations on the ledger, with settlement still occurring via existing payment infrastructure.

Taken together, these efforts suggest that the industry is moving beyond pilots toward interoperable systems. From a policy perspective, that raises a key question Levy and Ramaswamy implicitly put on the table: if the plumbing makes movement faster and more programmable, will regulators and banks anticipate and manage the resulting funding dynamics?

Liquidity lessons from instant payments—what’s comparable and what isn’t

Levy and Ramaswamy cite Brazil’s Pix instant-payment system as a comparison point, while emphasizing it is not identical to tokenized deposits. Their reasoning is that instant-payment rails can change how quickly funds can move, which can alter deposit behavior and, in turn, banks’ balance-sheet choices.

A 2025 study by Brazil’s central bank found that heavier Pix use increased banks’ holdings of liquid assets and reduced credit intermediation. While that evidence does not prove the same outcome will occur with tokenized deposits, it offers a relevant reference for how faster payment flows can influence bank liquidity decisions.

For investors and lenders, the policy takeaway is less about whether tokenization will “help or hurt” lending in the abstract and more about how institutions will adapt their asset-liability management. If deposit mobility rises, market participants should watch for shifts in liquidity buffers, reliance on wholesale funding, and credit pricing—channels the Dallas Fed analysis highlights.

Going forward, the key uncertainty is how quickly tokenized deposit networks translate into real consumer and business deposit switching behavior. Readers should watch for regulatory guidance around tokenized deposit frameworks and for measurable changes in banks’ funding structures—especially whether liquidity reserves and term-debt reliance rise as these systems expand.