Vantage Corp

The Dallas Federal Reserve warns that tokenized deposits could drain up to $700 billion from bank lending capacity. In a report published Tuesday, the Fed examines how widespread adoption of tokenized deposits—regulated digital assets that can pay interest—might reduce the stability of bank funding. Unlike stablecoins, tokenized deposits are subject to regulation, but instant settlement and smart contracts could make it easier for customers to chase higher yields, eroding the frictions that keep deposits sticky. The Dallas Fed estimates that a 10% increase in deposit-rate sensitivity could cut banks' capacity for interest-rate risk by about $700 billion in 10-year-equivalent terms. The report comes amid growing interest from banks in tokenized-payment experiments, including recent pilots by Custodia, Vantage, Barclays, BMO, and Swift.