A sweeping new law in Minnesota has authorized local banks and credit unions to provide cryptocurrency custody services for the first time, while imposing a total ban on crypto ATMs across the state. This legislative move is being described as the Midwest’s first explicit regulatory framework covering local financial institutions in the digital asset space.
Local financial sector faces transformation
In recent years, the rise of crypto exchanges and digital asset platforms has led to significant outflows of funds from Minnesota’s local banks and credit unions. State legislator Bernie Perryman explained that especially smaller and mid-sized institutions have seen a decline in deposits, which has reduced their capacity to support economic growth and lend within the region.
“During this process, we regularly witnessed local capital flowing out of state. As a result, resources that could have been earmarked for regional investments, mortgage loans, and community projects are dwindling,” Perryman stated.
According to Meggan Schwirtz, the head of St. Cloud Financial Credit Union, this issue goes beyond mere consumer demand; digital asset technologies are becoming increasingly valuable for the financial sector’s competitiveness and business operations.
Major Wall Street institutions have also been investing heavily in blockchain infrastructure for payments, custody services, and value transfers. Financial firms that ignore this shift may find themselves at a disadvantage in the future.
Glossary: Tokenization is the process of creating digital representations of traditional financial assets or rights on a blockchain. This method makes it possible to transfer securities, real estate, and similar assets more efficiently, transparently, and rapidly.
New regulations and their scope
Last week, Governor Tim Walz signed a bill authorizing Minnesota banks and credit unions to offer custody and safeguarding services for crypto assets. The law, which passed with bipartisan support, comes into effect on August 1.
Conversely, the same legislation has imposed a full ban on all crypto ATMs and kiosks statewide. Under regulation SF 3868, these ATMs must be shut down by August 1. Following the law’s passage, Bitcoin Depot, one of the largest operators of bitcoin ATMs in the US, filed for bankruptcy.
Implementation and oversight
The adoption of this law marks a significant step for the state. Yet Ryan Smith of the Minnesota Credit Union Network stressed that the regulations alone are not sufficient; additional federal requirements must be met, especially those targeting anti-money laundering, suspicious activity reporting, and customer verification standards.
For banks and credit unions to provide these services, they must strengthen their own internal controls and insurance systems. In this context, St. Cloud Financial Credit Union has arranged a new insurance model backed by Lloyd’s of London.
Competition and future outlook
A recent report from Jefferies forecasts that the rise of stablecoins and tokenization could reduce the equity capital of US banks by 3 to 5 percent in the coming years. Meanwhile, integration of digital assets into financial infrastructures and the growing use of stablecoins in payments dominated debates at major industry events like Consensus Miami.
| Feature | Local Credit Unions & Banks | Wall Street Financial Firms |
|---|---|---|
| Target Customers | Regional, local individuals and businesses | Global, high-volume clients |
| Digital Asset Custody | Launching with new legal authority | Already invested |
| ATM Services | Banned from August 1 | Ongoing in some states |
Minnesota’s new law grants banks and credit unions the authority to offer crypto custody, but the simultaneous shutdown of ATM operations will drastically change local access to digital assets. Experts warn this move presents institutions with new risks and responsibilities moving forward.
