Minnesota has enacted the first cryptocurrency custody law in the Midwest, authorizing state-chartered banks and credit unions to hold digital assets for customers starting August 1, 2026. The legislation signals how regional financial institutions are moving to compete directly with crypto exchanges and Wall Street firms for deposit flows that have begun migrating to digital asset platforms.
Why Minnesota Moved on Crypto Custody
Deposit flight to crypto platforms has become a measurable threat to community banks and credit unions. Rep. Bernadette “Bernie” Perryman, a co-author of the bill, stated that “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.” When deposits leave local institutions for out-of-state crypto platforms, those dollars no longer fund small business lending, mortgages, and community development within Minnesota. Research from Jefferies estimates stablecoins could erode bank deposits by 3 percent to 5 percent over five years, cutting average bank earnings by roughly 3 percent. The law allows Minnesota institutions to offer custody services as part of a full financial services package, keeping capital local.
Compliance Requirements and Insurance Structure
The law requires state-chartered banks and credit unions to meet strict federal compliance standards, including anti-money laundering programs, suspicious activity reports, and know-your-customer diligence. Critically, cryptocurrency custody services fall outside FDIC and NCUA federal deposit insurance protections. St. Cloud Financial Credit Union, among the first institutions positioning itself to offer custody services, is securing private insurance alternatives through Lloyd’s of London. Meggan Schwirtz, Chief Experience Officer at St. Cloud Financial, emphasized that “this is no longer simply a question of ‘belief’ or consumer curiosity, it’s a matter of commercial and competitive relevance for financial institutions.” The tiered approach—federal compliance paired with private insurance—allows local institutions to operate custodial services without federal backstops.
Wall Street and Tokenization Reshaping Finance
Minnesota’s move reflects a broader shift toward tokenization and digital asset infrastructure across the financial system. Wall Street firms are aggressively positioning themselves in crypto infrastructure, stablecoins, and settlement layers. Schwirtz noted that “large financial institutions and Wall Street firms are aggressively positioning themselves around digital asset infrastructure because they recognize the long-term implications for payments, settlement, custody, and the future movement of value.” At Consensus Miami 2026, tokenization and stablecoin adoption dominated discussions. Joseph Lubin, CEO and founder of a major blockchain infrastructure firm, stated directly: “We’re moving into a world where essentially the entire economy is going to be tokenized.” Minnesota’s law ensures community financial institutions can participate in that transition rather than cede the market entirely to larger competitors.
Competing Measures and August Deadline
Governor Tim Walz signed the custody law following bipartisan passage in the legislature, with Rep. Steve Elkins authoring the original bill (HF 3709). The law takes effect August 1, 2026. On the same date, a separate statewide ban on cryptocurrency ATMs and kiosks also becomes effective under SF 3868, also signed by Walz. This dual approach—enabling custody services while restricting retail ATM access—reflects ongoing policy tension around retail crypto adoption. The August deadline gives institutions less than three months to build compliance infrastructure and insurance partnerships before offering custody services to customers.
