Minnesota Clears Path for Banks, Credit Unions to Offer Crypto Custody

Minnesota lawmakers say local financial institutions can't stay on the sidelines as Wall Street builds out digital-asset infrastructure, warning that customer deposits are migrating from community banks and credit unions to crypto exchanges outside the state. Rep. Bernadette "Bernie" Perryman (R‑St. Augusta), who authored the measure signed into law by Gov. Tim Walz, said she has heard growing concerns for years about deposit flight to digital-asset platforms. She argued that when money leaves Minnesota institutions, fewer dollars are available for local small-business lending, mortgages and community development. From the industry's perspective, the new authority is also about staying competitive, said Meggan Schwirtz, chief experience officer at St. Cloud Financial Credit Union. She said large financial institutions and Wall Street firms are positioning for long-term changes in payments, settlement and custody tied to digital assets, and that community lenders risk losing relevance with younger customers if they ignore the shift. Wall Street's push is increasingly centered on stablecoins and tokenization. A Jefferies report said stablecoins are unlikely to trigger a sudden run on U.S. bank deposits, but could gradually pressure earnings as adoption grows. Jefferies estimated privately issued digital-dollar adoption could reduce core deposits by 3% to 5% over five years and cut average bank earnings by about 3%. At this year's Consensus Miami conference, tokenization and stablecoins dominated the agenda. Joseph Lubin, CEO and founder, said the economy is moving toward broad tokenization. Circle marketing SVP Tim Queenan said institutions are exploring how to move core financial infrastructure on-chain, adding that stablecoins are becoming so integrated into payments that many users no longer think of themselves as crypto users. Minnesota is now the first Midwestern state to adopt a single, explicit framework allowing both state-chartered commercial banks and credit unions to provide cryptocurrency custody services. Walz signed the bill last week after it passed with overwhelming bipartisan support earlier this month. The law is set to take full effect on Aug. 1. Ryan Smith, chief advocacy officer at Minnesota Credit Union Network, said the state law is a key step but not the final word. Institutions offering custody will still need to comply with federal requirements, including anti-money laundering (AML) programs, Suspicious Activity Reports (SARs) and enhanced know-your-customer (KYC) diligence. Digital assets remain outside FDIC and NCUA insurance protections, prompting local institutions to pursue private alternatives. Schwirtz said St. Cloud Financial Credit Union has secured an underwriting partnership for a Lloyd's of London-backed insurance solution tailored to its custody operations. State Rep. Steve Elkins (DFL), one of three authors of bill HF 3709, called the measure a milestone that expands what community banks and credit unions can offer customers as part of a broader suite of services. The custody law arrives alongside a statewide crackdown on crypto ATMs and kiosks. Walz also signed a bipartisan bill (SF 3868) imposing a statewide ban effective Aug. 1. Separately, Bitcoin Depot, one of the largest U.S. bitcoin ATM providers, filed for bankruptcy on Monday.