The push to modernize the US banking system with blockchain technology could have an unintended consequence: making it more expensive for American households and businesses to borrow money. A new analysis from economists at the Federal Reserve Bank of Dallas warns that tokenized deposits, by enabling customers to move their money almost instantly, could undermine the stability of bank funding and force lenders to adjust their balance sheets in ways that raise credit costs.
In a research note, economists Rosie Levy and Srini Ramaswamy argue that the friction inherent in traditional banking—where moving a deposit can take time—acts as an anchor for the entire lending system. Banks rely on relatively stable deposits to fund long-term assets like mortgages and business loans. Tokenized deposits, combined with automated transfer mechanisms and potentially agentic artificial intelligence, could erase that friction, allowing depositors seeking higher yields to switch banks in seconds rather than days.
The authors developed several scenarios to illustrate the scale of the potential shift. 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 in which deposits remained at banks for 10% less time implies a reduction of about $580 billion, expressed in the same terms. These figures represent banks’ duration risk appetite, not direct, dollar-for-dollar cuts to lending volume.
Using Federal Reserve H.8 balance-sheet data, the economists estimated that US banks held approximately $7 trillion of long-term interest-rate exposure as of mid-July. About $5.8 trillion, or 80%, was supported by the duration characteristics of deposits other than large time deposits. The $700 billion figure assumes deposits have an average life of four years.
Levy and Ramaswamy stressed that their calculations are scenarios rather than forecasts, and they explicitly stated that their views should not be attributed to the Federal Reserve Bank of Dallas or the broader Federal Reserve System. They also stopped short of predicting how widely depositors would adopt automated transfer tools, describing large-scale adoption as uncertain.
If deposit volatility increases, the economists suggest banks could respond in several ways. One option would be to hold larger portfolios of highly liquid assets, such as reserves and US Treasurys, to better withstand faster outflows. Another would be to lean more heavily on term debt or wholesale funding to maintain their lending books. Both adjustments come with costs. Increasing reliance on wholesale funding typically raises funding expenses, and those higher costs can propagate into credit terms for borrowers—precisely the outcome the authors say could increase credit costs for US households and businesses.
The researchers point to Brazil’s Pix instant-payment system as a relevant, though imperfect, comparison. 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 useful reference for how faster payment flows can influence bank liquidity decisions.
Industry Push Continues
The Dallas Fed’s caution arrives as US banks accelerate their efforts to build 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. The initiative is targeting a launch during 2027 and is intended to give smaller lenders their own route on-chain.
Separately, The Clearing House is developing another network backed by major institutions including JPMorgan Chase, Bank of America, Citi, BNY, and Wells Fargo. That project is also targeting a 2027 launch and is designed to support automated workflows, interoperability, and 24/7 settlement.
Banks have also begun connecting tokenized-deposit systems across organizations. On August 20, Standard Chartered and HSBC completed a live cross-border transaction through Swift’s blockchain ledger. The design linked the two banks’ separate systems and recorded obligations on the ledger, with settlement still occurring via existing payment infrastructure. Swift said in July that its blockchain ledger was ready for initial use, with 17 banks across six continents preparing pilots.
Industry participants are already weighing the potential fallout. Matt McAfee, head of enterprise innovation and digital assets at M&T Bank, told American Banker that the risks feel familiar but are “heightened in a world where customers can move money 24/7.”
The push toward tokenized deposits reflects a strategic choice by banks. Facing competition from stablecoins, which still lack a complete regulatory framework in the US, banks have positioned tokenized deposits as a fully regulated alternative that keeps customer funds within the existing banking system and can even pay interest to holders. For adoption to matter, the Dallas Fed noted, deposit tokens have to circulate beyond the bank that issued them—which is exactly what consortia like The Clearing House network and BankChain Alliance are designed to enable.
The key uncertainty going forward is how quickly these networks translate into real consumer and business deposit-switching behavior. Market participants 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. The design choices made now, particularly around interoperability, will determine how easily deposits can move between institutions and how much competitive pressure banks face for funding.