Tokenized deposits could drain $700 billion from U.S. bank lending, Dallas Fed warns

A report by Dallas Fed economists Rosie Levy and Srini Ramaswamy warns that tokenized deposits could reduce U.S. banks' capacity to hold long-term interest-rate risk by $700 billion if depositors become 10% more sensitive to interest rates. Instant settlement, smart contracts, and agentic AI could allow depositors to switch banks instantaneously for higher yields, eroding deposit stickiness. Meanwhile, a consortium of 40 Japanese banks is piloting DeCurret's DCJPY platform to test whether on-chain real-time gross settlement can replace the 53-year-old Zengin System's deferred net settlement.

Tokenized deposit settlement risk

• ▪The DeCurret-led consortium is testing whether on-chain settlement of a DCJPY interbank obligation carries the same legal finality under current Japanese banking law and insolvency rules as a Bank of Japan BOJ-NET settlement.
• ▪The DeCurret-led consortium is testing two architectural approaches to on-chain real-time gross settlement: the TD Lead Bank Model, which concentrates multi-bank settlement at a single private institution, and the TD-SC Integration Model, which uses a stablecoin as the interbank settlement medium.

Dallas Fed lending capacity estimates

• ▪Dallas Federal Reserve economists Rosie Levy and Srini Ramaswamy estimated that if tokenization causes deposits to leave banks 10% sooner, U.S. banks could lose about $580 billion of capacity to absorb the interest-rate risk of long-term loans and securities.
• ▪Dallas Federal Reserve economists Rosie Levy and Srini Ramaswamy estimated that "other deposits," excluding large time deposits, support about $5.8 trillion, or 80%, of the U.S. banking system's roughly $7 trillion in long-term interest-rate exposure.
• ▪A report by Dallas Federal Reserve economists Rosie Levy and Srini Ramaswamy warns that tokenized deposits could reduce U.S. banks' capacity to hold long-term interest-rate risk by about $700 billion if depositors become 10% more sensitive to interest rates.

Japan blockchain settlement pilot

• ▪Approximately 40 Japanese banks have begun a blockchain settlement pilot using the DCJPY permissioned-blockchain tokenized deposit platform to test whether on-chain real-time gross settlement can replace the deferred, end-of-day net clearing used by Japan's Zengin System.
• ▪The Japanese 40-bank blockchain settlement pilot operates under the Financial Services Agency FinTech PoC Hub designation as a formally designated Payment Innovation Project, led by DeCurret DCP Inc. alongside GMO Aozora Net Bank and Abeam Consulting.
• ▪The results of the 40-bank DCJPY pilot will inform a design decision Japan's government must make within fiscal year 2026 regarding whether the country's planned 2030 national payment system successor to the Zengin System incorporates blockchain architecture.

Zengin System deferred net settlement

• ▪The deferred net settlement model of Japan's Zengin System creates settlement risk because recipient banks credit customers in real time before the actual interbank transfer of central bank money occurs at the end of the business day.
• ▪Japan's Zengin System, which has operated since 1973, uses a deferred net settlement model where the Zengin Center accumulates payment instructions throughout the business day and forwards a net position report to the Bank of Japan for end-of-day settlement.

Bank funding cost pressures

• ▪To retain deposits in an environment with tokenized deposits, banks could respond by paying higher interest rates, holding more reserves and Treasuries, or relying more heavily on expensive term debt.
• ▪If banks rely on more expensive wholesale term debt to maintain their existing lending, it would likely adversely impact the cost of credit for consumers and businesses.
• ▪A 2025 study of Brazil's instant payment network Pix found that heavier usage of the system increased banks' holdings of liquid government bonds, reduced credit intermediation, and increased the share of subprime loans in bank loan books.

Deposit stickiness erosion

• ▪Tokenized deposits enable programmable payments and real-time settlement, but these features could weaken the frictions that make traditional bank deposits sticky.
• ▪Smart contracts and agentic artificial intelligence could automate the process of switching deposits between banks to chase higher yields without requiring direct action from the deposit holder.