Tokenization Threatens Deposit Stability, Dallas Fed Researchers Warn

Researchers at the Federal Reserve Bank of Dallas have issued a warning that the growing use of tokenized deposits and 24/7 blockchain settlement could undermine the liquidity and long‑term lending capacity of U.S. banks.

Potential Impact on Maturity Transformation

The study, authored by Rosie Levy and Srini Ramaswamy, focuses on how tokenized deposits might change the traditional banking model of maturity transformation – using short‑term deposits to fund long‑term assets such as mortgages and business loans. The authors estimate that about 80 % of the roughly $7 trillion of duration risk held by banks is supported by the stability of conventional deposits. A 10 % reduction in the weighted‑average life of deposits could cut the system’s maturity‑transformation capacity by approximately $580 billion.

Liquidity Risks and Regulatory Implications

Tokenization could increase deposit velocity and volatility, prompting regulators to assign higher outflow assumptions in stress‑testing models. To meet higher liquidity coverage ratio (LCR) requirements, banks might need to hold more high‑quality liquid assets, reducing the funds available for higher‑yielding loans.

Industry Response

Chris Turner, co‑founder of the decentralized impact‑investment platform Kula, challenged the Fed’s conclusions. Turner argued that the speed of a token transfer does not automatically translate into faster legal settlement of the underlying financial claim, which still depends on traditional intermediaries such as custodians and clearing systems.

Early Adoption by Major Banks

While tokenized deposits remain in early stages of adoption, institutions like Wells Fargo are preparing to offer 24/7 tokenized payment services to corporate clients, starting with USD‑to‑GBP transactions.