Dallas Fed Says Tokenized Deposits Could Cut US Banks’ Lending Capacity by Up to $700 Billion
Summary
- The Federal Reserve Bank of Dallas said wider adoption of tokenized deposits could reduce US banks’ lending capacity by as much as $700 billion.
- It said banks’ capacity to absorb long-term interest-rate risk could shrink if tokenization increases depositors’ interest-rate sensitivity and speeds up deposit transfers.
- It said the case of Brazil’s Pix showed banks increasing their share of liquid assets such as government bonds while reducing their loan intermediation function.
Forecast Trend Report by Period
Wider adoption of tokenized deposits could reduce US banks’ lending capacity by as much as $700 billion, according to a Dallas Fed analysis.
CoinDesk reported on August 25 that the Federal Reserve Bank of Dallas said in a recent report that tokenization could weaken the stability of bank deposits.
The Dallas Fed focused on the ease with which depositors could move money in search of higher rates if tokenization becomes more widespread. With real-time transactions, customers could shift deposits almost instantly when another bank offers a better yield.
The report assumed an average deposit duration of four years. Under a scenario in which tokenization makes depositors 10% more sensitive to interest rates, banks’ capacity to absorb long-term interest-rate risk would decline by about $700 billion.
In a separate scenario in which the expected time deposits remain at banks is shortened by 10%, that capacity would fall by about $580 billion.
A similar pattern was observed in Brazil’s real-time payments network, Pix, the report said. As Pix usage increased, Brazilian banks raised the share of liquid assets such as government bonds while scaling back their loan intermediation function.
JOON HYOUNG LEE
gilson@bloomingbit.ioCrypto Journalist based in Seoul