US Banks Eye Own Blockchain as Tokenized Deposits Pose Risk to Lending Capacity

US banks are facing a potential threat to their lending capacity from tokenized deposits, a new report by the Federal Reserve Bank of Dallas warns. Tokenized deposits allow customers to switch between banks instantly, reducing friction and making it easier for them to seek higher yields. This could lower the average life of deposits while making them more rate sensitive.

The report suggests that if 10% of deposits were tokenized, maturity transformation capacity would shrink by around $580 billion. Banks would need to hold larger high-quality liquid asset portfolios to mitigate this risk. However, implementing pricing changes or increasing liquidity could also help alleviate some of these risks.

The BankChain Alliance is planning to create an industry-owned blockchain network, which will allow banks to provide modern capabilities and continue serving customers safely and efficiently. The alliance claims to be exploring all options for its new network, including tokenized deposits, automated payments, and even its own stablecoin(s).

Former SEC enforcement director John Reed Stark has criticized the agency's 'Reg Crypto' proposals, saying they would strip registration protections from a fraud-saturated asset class. He is urging his followers to file a complaint with the nearest US Court of Appeals rather than submitting comments to the SEC.