Tokenized deposits could affect bank liquidity, maturity transformation

The Federal Reserve Bank of Dallas explores the systemic implications of tokenized deposits, contrasting them with stablecoins by highlighting their integration within existing bank regulatory frameworks. While stablecoins often operate outside traditional banking structures, tokenized deposits offer interest-bearing alternatives that could fundamentally alter bank liquidity management. The analysis suggests that tokenization could reduce the 'stickiness' of deposits by enabling near-instantaneous transfers, potentially increasing deposit rate betas and shortening the weighted average life of liabilities. Such shifts threaten the banking sector's core function of maturity transformation, as banks currently rely on the long duration of deposits to fund long-term loans. The report estimates that a 10% reduction in deposit duration could shrink maturity transformation capacity by approximately $580 billion in 10-year equivalents. Furthermore, the increased volatility and outflow uncertainty associated with programmable, real-time tokenized deposits may necessitate higher holdings of high-quality liquid assets. Ultimately, the Dallas Fed highlights that while tokenized deposits could improve payment efficiency, they risk forcing banks to rely more on expensive term debt, potentially increasing the cost of credit for the broader economy.