Minnesota’s Crypto Move: Local Banks Fight Wall Street for Digital Asset Dominance

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Why Minnesota is empowering local banks to fight Wall Street for crypto revenueFinance

What to know:

  • Minnesota has enacted a first-of-its-kind Midwestern law allowing state-chartered banks and credit unions to offer cryptocurrency custody services, aiming to stem deposit flight to out-of-state crypto platforms.
  • Lawmakers and local bankers say the measure is needed to keep community institutions competitive as Wall Street accelerates its push into digital asset infrastructure, stablecoins and tokenization.
  • The law, which takes effect Aug. 1, 2026, comes alongside a statewide ban on crypto ATMs and kiosks and will require institutions offering custody to meet strict federal compliance standards without the protection of federal deposit insurance.

Minnesota banks are feeling pressure to get involved in the growing digital asset market. With Wall Street rapidly building the technology for these assets, local leaders and bankers are urging the state to pass laws that prevent money from leaving Minnesota and protect its economy, according to a report by CoinDesk.

Representative Bernadette Perryman of St. Augusta has repeatedly heard from people worried about money leaving local banks and credit unions to go to cryptocurrency exchanges and digital asset companies.

The state representative who wrote the new law recently signed by Governor Walz – allowing Minnesota banks and credit unions to hold cryptocurrency for customers – stated that a loss of deposits has been a major problem for the state.

According to Perryman, when money flows from local banks and credit unions to cryptocurrency exchanges located elsewhere, it reduces the amount of funding available for local investments like small business loans, home mortgages, and community projects.

According to Meggan Schwirtz, the chief experience officer at St. Cloud Financial Credit Union, banks are also concerned about staying competitive, as she explained to CoinDesk.

She explained that this isn’t just about what people think or are interested in anymore. It’s now crucial for banks and other financial companies to stay competitive and successful.

‘Aggressively positioning’

According to Schwirtz, major financial institutions and Wall Street companies are heavily investing in the technology behind digital assets. They understand these assets will significantly change how payments are made, transactions are settled, assets are held, and value is transferred in the future.

She also pointed out that local banks and credit unions need to adapt to changing consumer preferences if they want to stay competitive with younger generations.

Schwirtz is right to point out that major Wall Street firms are getting more involved with crypto. They’re using things like stablecoins and tokenization to remain competitive and quickly embrace blockchain technology.

A new report from Jefferies suggests that while stablecoins aren’t expected to cause a sudden withdrawal of money from U.S. banks, their growing popularity could gradually reduce bank profits. The firm predicts that if privately issued digital dollars become more widely used, banks could see a 3% to 5% decrease in deposits over the next five years, which would lower average earnings by approximately 3%.

This year’s Consensus Miami conference focused heavily on tokenization and stablecoins, becoming the dominant themes and eclipsing other areas of crypto. Joseph Lubin, CEO and founder, predicted that the entire economy will eventually be based on tokens. Tim Queenan, Circle’s SVP of marketing, noted that institutions are actively investigating ways to build financial systems directly on the blockchain, and stablecoins are becoming so common in payments that people often don’t realize they’re using cryptocurrency at all.

Major milestone

Minnesota is the first state in the Midwest to officially allow both banks and credit unions to securely hold cryptocurrencies for their customers. They’ve done this by passing a new, comprehensive law that specifically authorizes these services.

Governor Tim Walz signed a new law last week that will take effect on August 1st. It received strong support from both Democrats and Republicans in the state legislature earlier this month.

Ryan Smith, from the Minnesota Credit Union Network, explained that while the new law is an important step, it won’t be the final rule regarding how cryptocurrency is handled and protected.

Banks and other financial companies offering cryptocurrency services must follow numerous federal rules. Specifically, they need to have systems in place to prevent money laundering, report any suspicious transactions, and thoroughly verify the identity of their customers.

Digital assets like cryptocurrencies aren’t covered by standard federal deposit insurance from the FDIC or NCUA. However, some financial institutions are creating their own ways to protect these assets. For example, St. Cloud Financial Credit Union has partnered with an insurance provider backed by Lloyd’s of London to specifically protect the digital assets they hold for customers.

State Representative Steve Elkins praised the new law as a big step forward, noting it changes how digital assets will be handled. He acknowledged there’s still more work to be done, but sees this as an important achievement.

According to Elkins, a co-author of bill HF 3709, local banks and credit unions aimed to provide this service to their customers as part of a full range of financial offerings, as he explained to CoinDesk.

A new law was enacted at the same time as increased regulation of cryptocurrency ATMs throughout the state. Governor Walz also signed a law, with support from both parties, that will completely ban these ATMs starting August 1st. Coincidentally, Bitcoin Depot, one of the biggest companies operating these machines, filed for bankruptcy on Monday.

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2026-05-22 21:24