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Minnesota Empowers Local Banks to Fight Wall Street for Crypto Revenue
Minnesota becomes first Midwestern state to let banks and credit unions offer crypto custody. Jefferies sees 3-5% deposit runoff threat. Local lenders must build AML compliance and private insurance.
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Minnesota Governor Tim Walz signed a law last week allowing state-chartered banks and credit unions to offer cryptocurrency custody services. The legislation, effective August 1, makes Minnesota the first Midwestern state with a unified framework for local financial institutions to hold digital assets on behalf of customers.
The law is a direct response to deposit flight. Dollars that flow from local lenders to crypto exchanges outside the state cannot be reinvested in small-business loans, mortgages, or community development, said Representative Bernadette "Bernie" Perryman, the bill's author.
The Deposit Flight That Pushed Minnesota to Act
Perryman told CoinDesk that she consistently heard concerns about the increasing deposit flight from local institutions to digital asset platforms. When those dollars leave, there are fewer opportunities for local reinvestment.
From the banker's side, the imperative is competitive relevance. Meggan Schwirtz, chief experience officer at St. Cloud Financial Credit Union, said the issue is no longer about "belief" or consumer curiosity. It is about commercial and competitive relevance.
Schwirtz pointed out that large financial institutions and Wall Street firms are aggressively positioning around digital asset infrastructure because they recognize the long-term implications for payments, settlement, custody, and the future movement of value. Local banks cannot afford to ignore that shift if they intend to remain relevant to future generations.
Wall Street's Stablecoin Push and the 3% Earnings Threat
The competitive threat is not abstract. A recent Jefferies report found that privately-issued digital dollar adoption could drive a 3% to 5% runoff in core deposits over five years, cutting average bank earnings by about 3%.
At Consensus Miami this year, tokenization and stablecoins dominated every other crypto topic. Joseph Lubin, CEO and founder of ConsenSys, said the entire economy is moving toward tokenization. Circle SVP of marketing Tim Queenan noted that institutions are increasingly exploring how to move core financial infrastructure onchain, and that stablecoins are becoming so embedded in payments that users often do not think of themselves as crypto users.
For local banks, the message is clear: if they do not offer custody, their customers will move deposits to firms that do.
What the New Law Covers and When It Takes Effect
The law, passed with overwhelming bipartisan support earlier this month, authorizes both state-chartered commercial banks and credit unions to offer cryptocurrency custody services. It takes full effect on August 1.
The legislation was one of two crypto-related bills signed by Walz on the same day. He also signed SF 3868, a separate bipartisan bill that imposes a statewide ban on crypto ATMs and kiosks, effective August 1. That move coincides with the bankruptcy filing of Bitcoin Depot, one of the largest bitcoin ATM providers, on Monday.
Representative Steve Elkins, one of three authors of the custody bill, called the new law a major milestone. He told CoinDesk that community banks and credit unions wanted to offer custody as part of a comprehensive array of financial services.