Tokenized Deposits Could Drain $700 Billion From Bank Lending, Dallas Fed Warns

Tokenized deposits could enable faster payments but make banks’ funding less stable, according to a report by the Dallas Federal Reserve.

The report, published on Tuesday, examines how widespread adoption could affect bank liquidity and maturity transformation—the use of deposits available on demand to finance longer-term loans.

“Increasing adoption of distributed ledger technology—blockchain is the best known—has opened up digital payment infrastructure, allowing real-time settlement,” the report said. “Growth in stablecoins has garnered attention, supported by efforts to construct regulatory regimes in the U.S. and overseas. Meanwhile, tokenized deposits have received comparatively little focus.”

Unlike stablecoins such as USDT and USDC, tokenized deposits are regulated and can pay interest; however, the report noted, instant settlement, smart contracts, and agentic AI could make it easier for customers to chase higher yields—eroding the frictions that keep deposits “sticky.”

“Sticky deposits rely in part on the existence of frictions preventing rapid reallocation from one bank to another. Instant settlement would allow deposit holders who prioritize yield to switch banks almost instantaneously,” the agency wrote.

Faster outflows and greater sensitivity to interest rates could make banks less willing to hold longer-term, fixed-rate assets. The Dallas Fed estimates that a 10% increase in deposit-rate sensitivity could cut banks’ capacity for interest-rate risk by about $700 billion in 10-year-equivalent terms.

The authors separately calculate that a 10% reduction in deposits’ weighted average life could cut the banking system’s maturity-transformation capacity by $580 billion.

“Alternatively, banks could strive to leave the composition of lending close to unchanged by altering their liabilities in other ways,” they wrote. “This would likely include greater reliance on term debt issuance; on the margin, the economics of such lending activity funded by wholesale debt would resemble those of non-bank financial firms and would thus likely adversely impact the cost of credit for consumers and businesses.”

The report is a part of a growing interest by banks looking to expand their tokenized-payment experiments.

In October 2025, Custodia and Vantage unveiled a U.S. tokenized-deposit network. Barclays was exploring tokenized deposits and stablecoin payments as of February 2026, while BMO announced plans for round-the-clock tokenized cash settlement with CME Group and Google Cloud in March.

More recently, in July, global payment system Swift announced a pilot that would allow 17 global banks to transfer tokenized deposits outside normal banking hours, although final settlement would still depend on legacy payment systems operating during business hours.