Tokenized deposits could make bank funding less stable and raise credit costs for US households and businesses, according to an analysis by two economists at the Federal Reserve Bank of Dallas. Rosie Levy and Srini Ramaswamy said the ability of depositors to move money instantly between institutions could shorten the time that deposits stay at any one bank, making bank funding more sensitive to interest rate movements.

In a report tied to the central bank's latest research, the economists said programmable deposits and agentic artificial intelligence tools could make such transfers automatic, allowing depositors to chase higher yields with little friction. They described the potential shift as a structural change for commercial banking, where deposits have long served as a stable, low-cost source of funding for loans and investments.

What Are Tokenized Deposits?

Tokenized deposits are digital representations of traditional bank deposits issued on a blockchain or distributed ledger. Unlike stablecoins, which are typically backed by reserves held by an issuer, tokenized deposits represent actual liabilities of a regulated bank and usually benefit from the same deposit insurance protections as ordinary deposits. The tokens are designed to move through shared networks, enabling near-instant settlement while keeping customer funds inside the traditional banking system.

Banks have been experimenting with tokenized deposits for several years, and the pace of development has accelerated. The core attraction is efficiency: automated and programmable money could reduce settlement times, cut reconciliation costs, and enable new types of transactions, including those initiated by smart contracts or AI agents. But that efficiency comes with a potential downside for banks, as the Dallas Fed economists point out.

Key Facts

• Dallas Fed economists estimate that deposits becoming 10% more interest-rate sensitive could cut banks' capacity to hold long-term assets by about $700 billion in 10-year equivalents.
• If deposits stayed at banks for 10% less time, banks' capacity could fall by about $580 billion in 10-year equivalents.
• 39 US state banking associations formed the BankChain Alliance on Aug. 25, 2026, to develop a nationwide network for tokenized deposits, stablecoins and automated settlement.
• The Clearing House is building a separate tokenized-deposit network backed by JPMorgan Chase, Bank of America, Citi, BNY and Wells Fargo.
• Standard Chartered and HSBC completed a live cross-border transaction through Swift's blockchain ledger on Aug. 20, 2026, linking separate tokenized-deposit systems.

The Dallas Fed Scenarios

Levy and Ramaswamy modeled how tokenized deposits might change the behavior of depositors. They used two scenarios to illustrate the risk. In the first, they assumed that deposits become 10% more sensitive to interest rates. That could happen if depositors can use automated tools to monitor yields across banks and move funds in real time. In that scenario, the economists estimated that banks' capacity to hold long-term loans and other assets could fall by about $700 billion in 10-year equivalent terms.

In the second scenario, they examined what would happen if the average time that deposits remain at a bank falls by 10%. This could result from programmatic sweeps triggered by yield differentials or by AI agents acting on behalf of depositors. That scenario would reduce banks' capacity to hold long-term assets by about $580 billion in 10-year equivalents.

The economists stressed that these figures are not forecasts and do not represent dollar-for-dollar reductions in lending. They are illustrative calculations intended to show the scale of potential stress. Even so, the numbers point to a concern: if banks cannot rely on deposits as a stable funding base, they may need to make costly adjustments.

Industry Push for Tokenized-Deposit Networks

The analysis comes as the US banking industry builds shared infrastructure to make tokenized deposits practical. On Aug. 25, 2026, 39 state banking associations announced the formation of the BankChain Alliance, a group convened to develop a nationwide network supporting tokenized deposits, stablecoins and automated settlement. The alliance aims to connect banks of all sizes, not just the largest institutions, and to create interoperability standards.

Separately, The Clearing House is developing a tokenized-deposit network with the backing of JPMorgan Chase, Bank of America, Citi, BNY and Wells Fargo. That network is expected to allow participating banks to issue and transfer tokenized deposits on a shared platform, with the goal of enabling instant, around-the-clock settlement.

Banks have also begun to connect tokenized-deposit systems across institutions. On Aug. 20, 2026, Standard Chartered and HSBC completed a live cross-border transaction through Swift's blockchain ledger. The transaction linked the banks' separate tokenized-deposit systems and recorded the resulting obligations before settlement through existing payment infrastructure. That test demonstrated that tokenized deposits can be moved across different banking networks, even when the underlying systems are built independently.

These initiatives suggest that tokenized deposits are moving from concept to implementation. But the Dallas Fed economists warn that the same features making tokenized deposits appealing could also change the dynamics of bank funding in ways that have real economic consequences.

What the Changes Could Mean for Banks

Banks have historically relied on a simple model: take in deposits, pay a low interest rate, and lend those funds out at a higher rate over longer horizons. This maturity transformation works when deposits are sticky, meaning depositors do not move their money quickly even when rates change. Tokenized deposits could reduce that stickiness.

If depositors can switch banks instantly and automatically, banks would face a greater risk of sudden outflows. A bank that pays below-market rates could see its deposit base shrink quickly, forcing it to sell assets or borrow in wholesale markets to meet obligations. To guard against that risk, banks might choose to hold larger portfolios of highly liquid assets, including reserves and US Treasurys. That would make banks safer, but it would also reduce the funds available for lending to households and businesses.

Alternatively, banks could try to maintain their lending portfolios by relying more heavily on term debt, such as bonds. But funding loans through wholesale debt is generally more expensive than funding them through retail deposits. The economists said this shift would likely increase credit costs for consumers and businesses, as banks pass on the higher cost of funds.

Lessons from Brazil's Pix

The Dallas Fed economists cited Brazil's Pix system as a useful comparison, while noting that it is not identical to tokenized deposits. Pix is an instant-payment system launched by Brazil's central bank that allows individuals and businesses to make and receive payments in real time, 24 hours a day. Since its debut in 2020, Pix has become one of the world's most widely used instant-payment systems.

A 2025 study found that heavier use of Pix increased banks' holdings of liquid assets and reduced credit intermediation. In other words, Brazilian banks responded to faster deposit outflows by becoming more cautious, holding more reserves and lending less. The Dallas Fed economists see that experience as a potential preview of what could happen in the United States if tokenized deposits become widely used.

There are important differences. Pix moves traditional deposits, not tokenized deposits, and it does not involve programmability or AI agents. But the behavioral channel is similar: faster payments can make deposits more flighty, and banks may respond by reducing their role in credit creation.

Broader Implications for the US Financial System

The Dallas Fed analysis adds to a growing body of research on how blockchain-based money might affect the banking sector. Proponents of tokenized deposits argue that the technology can make payments more efficient, expand financial inclusion and reduce fraud. They also note that tokenized deposits keep money within the regulated banking system, unlike unbacked stablecoins that may pose risks to financial stability.

But the Dallas Fed economists highlight a trade-off. The very features that make tokenized deposits convenient, speed, programmability and automation, could also make bank funding less predictable. If banks respond by holding more liquid assets, the economy could see a reduction in credit intermediation. If they respond by borrowing in wholesale markets, borrowers could face higher interest rates.

The net effect on the economy would depend on how banks adjust their business models, how regulators adapt, and how quickly tokenized deposit networks scale. The BankChain Alliance and The Clearing House are still in early phases, and cross-border interoperability remains limited. It is possible that the widespread adoption of tokenized deposits is years away. But the scenario analysis suggests that the transition could carry significant costs even if it unfolds gradually.

As the banking industry continues developing the infrastructure for tokenized deposits, the Dallas Fed economists' analysis serves as a reminder that innovations in payment technology can have unintended consequences for the broader financial system. Policymakers and bank executives will have to weigh the benefits of faster, programmable money against the risks of less stable funding and potentially higher credit costs.

Source: Cointelegraph News