In a significant move for the state’s financial landscape, Minnesota has enacted a law allowing state-chartered banks and credit unions to provide cryptocurrency custody services. This decision comes amid growing concerns over deposit flight to crypto exchanges as Wall Street intensifies its focus on digital assets.
Representative Bernadette Perryman (R-St. Augusta), who sponsored the bill recently signed by Governor Tim Walz, highlighted the challenges faced by local financial institutions. “Over the last several years, I’ve consistently heard concerns about the increasing amount of deposit flight from local financial institutions to crypto exchanges and digital asset platforms,” she noted.
Perryman emphasized that the outflow of funds hampers local reinvestment opportunities, affecting small business lending and community development. The urgency for local banks to adapt is echoed by Meggan Schwirtz, chief experience officer at St. Cloud Financial Credit Union. She stated, “This is no longer simply a question of ‘belief’ or consumer curiosity; it’s a matter of commercial and competitive relevance for financial institutions.”
Schwirtz pointed out that major financial players are strategically positioning themselves within the digital asset space, recognizing its long-term implications for payments and value transfer. As Wall Street firms deepen their involvement with stablecoins and tokenization, local banks must respond to remain competitive.
A recent report from Jefferies indicated that while stablecoins may not trigger an immediate rush away from traditional bank deposits, they could gradually diminish bank earnings, projecting a potential 3% to 5% decrease in core deposits over five years.
At the forefront of the legislative changes, Minnesota has become the first Midwestern state to establish a comprehensive framework for cryptocurrency custody services. This new law, which enjoys bipartisan support, is set to take effect on August 1.
Ryan Smith, chief Advocacy Officer at Minnesota Credit Union Network, acknowledged the importance of the law but cautioned that compliance with federal regulations will still be necessary. Institutions offering these services must implement anti-money laundering (AML) measures and conduct thorough customer due diligence.
Despite the absence of federal insurance for digital assets, local institutions are exploring private compliance solutions. St. Cloud Financial Credit Union has already partnered with a Lloyd’s of London-backed insurance entity to enhance their custody operations.
State Representative Steve Elkins (DFL), who co-authored the bill, described the legislation as a pivotal development in the management of digital assets. He stated, “The community banks and credit unions wanted to be able to offer this service for their customers and members as part of a comprehensive array of financial services.”
However, the new law coincides with a statewide ban on crypto ATMs and kiosks, signed into law by Governor Walz. This ban, effective August 1, follows the recent bankruptcy filing of Bitcoin Depot, one of the largest bitcoin ATM providers in the U.S.
Minnesota has passed a law enabling local banks and credit unions to offer cryptocurrency custody services, addressing concerns over deposit flight to crypto exchanges. This legislation marks a significant shift in the state's financial landscape amid Wall Street's growing influence in the digital asset sector.
Source: CoinDesk