Dallas Fed warns of tokenized deposits impact on bank lending

The Federal Reserve Bank of Dallas warned that each new entry into the recently popular tokenized deposits sheds from banks’ ability to fund loans for households and businesses when it weighed in on the stablecoins vs. tokenized deposits debate.

The paper by the Dallas apex bank returned three key areas where tokenized deposits will impact banks’ businesses and trickle into the economy:

• 80% of the duration risk taken by banks ($5.8 trillion 10-year equivalents out of $7 trillion total) in the aggregate is supported by the duration characteristics of deposits.
• A 10% reduction in the WAL of deposits would shrink maturity transformation capacity in the aggregate by about $580 billion 10-year equivalents.
• A 10% increase in the price sensitivity of deposits (deposit rate beta) would result in a reduction of $700 billion 10-year equivalents of duration risk appetite from banks (assuming a deposit WAL of four years).

Why the Dallas Fed is not so hot on tokenized deposits

Dallas Fed economists Rosie Levy and Srini Ramaswamy came back with headaches over maturity transformation after looking at the potential outcomes from a hypothetical future where banks are handling customer funds on blockchain rails.

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