Deposit tokenization warning: Bank of America's loan capacity may shrink by 700 billion

According to Woofun AI, Dallas Federal Reserve Bank economists Rosie Levy and Srini Ramaswamy warned that tokenizing deposits could weaken the stability of the US banking system, leading to a potential reduction of $700 billion in its lending capacity.

The underlying reason lies in structural changes in capital liquidity. If tokenization increases the sensitivity of savers to interest rates by 10%, the long-term interest rate risk tolerance will be reduced by about $700 billion; if deposits flow out 10% earlier, this capacity will decrease by about $580 billion. This estimate is based on a four-year average retention time.

According to data compiled by Woofun AI, the $5.8 trillion “other deposits” that support the US banking industry's $7 trillion long-term interest rate risk exposure account for 80%. The instant settlement, programmable payment and real-time settlement features given by blockchain, combined with smart contracts and agency-based artificial intelligence, enable savers seeking high returns to transfer funds instantaneously, weakening traditional restrictions.

To cope with capital losses, banks may be forced to raise interest rates, increase reserves and treasury bond holdings, or rely on fixed-term debt, thereby driving up credit costs for consumers and businesses. Brazil's 2025 study on Pix's instant payment system provided a reference: holdings of liquid assets, especially government bonds, increased, credit intermediation decreased, and banks increased the ratio of subprime loans in pursuit of returns.

Currently, tokenized deposits are still in their early stages, making it difficult to transfer them across issuers. However, Clearing House and Bank of America (BAC.US), City Bank (C.US), and Wells Fargo Group (WFC.US) are building an interoperable network aimed at interbank clearing, automated workflows, and 24/7 instant settlement. This development marks a key evolution in the industry's infrastructure.