Tokenized deposits could enable faster payments while making bank funding less stable, according to a report published on Tuesday by the Dallas Federal Reserve. The research examines how widespread adoption of the technology could impact bank liquidity and maturity transformation, which is the practice of using on-demand deposits to finance longer-term loans.
Unlike stablecoins, tokenized deposits are regulated and capable of paying interest. However, the report highlights that instant settlement, smart contracts, and agentic AI could eliminate the frictions that typically keep bank deposits stable. "Sticky deposits rely in part on the existence of frictions preventing rapid reallocation from one bank to another," the agency noted. Instant settlement would enable deposit holders seeking higher yields to switch banks almost immediately.
Faster outflows and increased sensitivity to interest rates could diminish banks' willingness to hold longer-term, fixed-rate assets. The Dallas Fed estimates that a 10% increase in deposit-rate sensitivity could reduce banks' capacity for interest-rate risk by approximately $700 billion in 10-year-equivalent terms. Separately, the authors calculate that a 10% reduction in the weighted average life of deposits could decrease the banking system's maturity-transformation capacity by $580 billion.
To maintain their lending composition, banks might alter their liabilities by increasing their reliance on term debt issuance. The report states that such lending activity, funded by wholesale debt, would closely resemble the economics of non-bank financial firms and could adversely affect the cost of credit for consumers and businesses.
Global banks are already experimenting with tokenized deposits and round-the-clock settlement systems. Custodia and Vantage introduced a U.S. tokenized-deposit network, Barclays explored tokenized deposits and stablecoin payments, and BMO announced plans for 24-hour tokenized cash settlement alongside CME Group and Google Cloud. Additionally, Swift launched a pilot enabling 17 global banks to transfer tokenized deposits outside of normal banking hours.
