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

Minnesota financial institutions can no longer afford to remain on the sidelines as Wall Street aggressively captures digital asset infrastructure, driving a state-level legislative push to halt deposit flight and insulate the local economy, a local legislator and a banker told CoinDesk.

“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,” said Rep. Bernadette “Bernie” Perryman (R-St. Augusta).

The lawmaker, who authored the bill recently enacted by Governor Tim Walz, paving the runway for state banks and credit unions to provide crypto custody service, explained that deposit flight has created significant challenges for Minnesota.

“When those dollars leave local institutions to crypto exchanges outside our state, there are fewer opportunities for those funds to be reinvested locally through small business lending, mortgages, and community development,” Perryman said.

From the state’s bankers’ perspective, the issue is also about remaining competitive, Meggan Schwirtz, chief experience officer at St. Cloud Financial Credit Union, told CoinDesk.

“This is no longer simply a question of ‘belief’ or consumer curiosity,” she said, “it’s a matter of commercial and competitive relevance for financial institutions.”

'Aggressively positioning'

Schwirtz said the “reality is 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.”

She also said local banks and credit unions could not “afford to ignore that shift if they intend to remain relevant to future generations of consumers.”

And Schwirtz is not wrong. Wall Street giants are increasingly deepening their crypto exposure through stablecoins and tokenization to stay ahead of the competition in the race to adopt blockchain technology.

A recent Jefferies report found that although stablecoins are unlikely to spark a sudden run on U.S. bank deposits, they could steadily erode bank earnings as they gain traction. The firm estimated 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%.

In fact, tokenization and stablecoins were the main topics at Consensus Miami this year, overshadowing all other crypto-related topics. “We’re moving into a world where essentially the entire economy is going to be tokenized,” . Meanwhile, Circle SVP of marketing Tim Queenan how to move core financial infrastructure onchain, adding that stablecoins are becoming so embedded in payments that many users no longer even think of themselves as crypto users.