The Federal Reserve of Dallas warns that monetized deposits or reduced bank lending capacity of $700 billion

ON 27 AUGUST, THE FEDERAL RESERVE OF DALLAS RELEASED A REPORT STATING THAT THE LARGE-SCALE SPREAD OF MONETIZED DEPOSITS COULD INCREASE THE SENSITIVITY OF DEPOSITS TO INTEREST RATES, ACCELERATE THE CROSS-BANK FLOW OF FUNDS AND WEAKEN BANK LIQUIDITY AND MATURITIES, WITH IMPLICATIONS FOR BANK CREDIT AVAILABILITY AND FINANCING COSTS. THE REPORT NOTES THAT, UNLIKE STABLE CURRENCIES SUCH AS USDT, USDC, MONETIZED DEPOSITS ARE USUALLY ISSUED BY REGULATED BANKS AND INTEREST IS PAYABLE. TECHNOLOGIES SUCH AS INSTANT SETTLEMENTS, SMART CONTRACTS, AND PROXY AI IN BLOCK CHAINS MAY MAKE IT EASIER FOR CLIENTS TO MOVE FUNDS QUICKLY IN PURSUIT OF HIGHER RETURNS, THUS WEAKENING THE " STICKINESS" OF TRADITIONAL BANK DEPOSITS. THE FEDERAL RESERVE OF DALLAS ESTIMATES THAT IF DEPOSIT INTEREST RATES BECOME MORE SENSITIVE BY 10 PER CENT, THE ABILITY OF BANKS TO TAKE INTEREST RATE RISK MAY BE REDUCED BY ABOUT $70 BILLION (BASED ON THE EQUIVALENT OF A 10-YEAR PERIOD); IF THE WEIGHTED AVERAGE DURATION OF DEPOSITS IS REDUCED BY 10 PER CENT, THE TIME-TO-DURATION CAPACITY OF THE BANKING SYSTEM MAY BE REDUCED BY ABOUT $58 BILLION. THE REPORT SUGGESTS THAT, IF BANKS STILL WISH TO MAINTAIN THE SIZE OF THEIR CURRENT LOANS, THERE MAY BE A NEED FOR GREATER RELIANCE ON WHOLESALE FINANCING, SUCH AS TERM-BASED DEBT, WHICH WOULD EVENTUALLY BRING THE MODEL OF BANK LENDING CLOSER TO NON-BANKING FINANCIAL INSTITUTIONS AND COULD INCREASE THE COST OF CREDIT FOR CONSUMERS AND BUSINESSES. CURRENTLY, SEVERAL GLOBAL BANKS HAVE STARTED TESTING TOKEN DEPOSITS AND ROUND-THE-CLOCK CLEARING SYSTEMS, AND THE POTENTIAL IMPACT OF TOKENIZED DEPOSITS ON TRADITIONAL BANKING SYSTEMS IS RECEIVING INCREASING ATTENTION FROM REGULATORS。