ABA Statement for the Record to the HFSC Subcommittee on Tokenization

The American Bankers Association (ABA) appreciates the opportunity to provide a Statement for the Record for this hearing, Next Generation Infrastructure: How Tokenization of Real-World Assets Will Facilitate Efficient Markets. The ABA is the voice of the nation’s $24 trillion banking industry, which is composed of small, regional and large banks that together employ approximately 2.1 million people, safeguard $19 trillion in deposits and extend $12.4 trillion in loans.

We appreciate the Subcommittee's attention to tokenization of real-world assets. While so much of the digital assets conversation to date has been dominated by discussion of cryptocurrencies, we believe tokenization of real-world assets is more likely to generate tangible and near-term benefits for financial markets. We strongly support reframing the digital assets discussion around tokenization and look forward to working with the Subcommittee and other policymakers on the topic.

Distributed ledger technology (DLT) has potential for application in financial services that, over time, may lead to enhanced efficiencies, reduced risk, new products, and new ways to deliver traditional products. For example, just last week, driven by the availability of faster technology and investor preference, settlement cycles for US securities trades moved from "T+2" settlement to "T+1" settlement. It is possible that the use of DLT and tokenization could enable even faster settlement cycles, and this is among the concepts being explored in various pilots.

The fundamental characteristics of DLT, including immutability and transparency, are relevant and valued in the financial services market. Tokenization – the process of recording ownership of a given asset or liability as a digital token on a distributed ledger – is an application of DLT with potential to enable near real-time transfer of value and exchange of value (asset settlement) that is programmable and transparently recorded on a shared system of record.

One application of tokenization is the opportunity to create a digital token representing commercial bank money, or a tokenized deposit. The same regulatory and legal framework that applies to a traditional bank deposit would apply to the tokenized deposit – the primary difference is how the deposit is recorded. The use of tokenized deposits could enable more efficient use of commercial bank money in payments and asset transactions.

Download the statement for the record to read the full text.