Additionally, banks are concerned that crypto could be used for illegal activities such as money laundering and terrorist financing.
I don't know where you got that information but I have never heard something like that coming from banks. I have heard that from other governmental authorities but I have never heard that from banks. IF it comes to money laundering than banks know better that fiat can also be used for money laundering and even those so called banks can't stop those money launderers. Yes, I agree that there has been allegations against crypto-currencies that they can be used for money laundering but those allegations are largely biased because as already discussed that fiat can also be used for illegal activities like money laundering and in fact fiat is more used for that purpose than crypto.
It is important to note that the relationship between banks and crypto is still in its early stages. As both technologies continue to develop, it is likely that we will see new and innovative ways for them to work together
I don't think that till today banks have any good relationship with crypto currencies other than just a few ones. The one I know is XRP which has some kind of collaboration with banks. If we talk about Bitcoin then I haven't heard that any bank has collaboration with it and I'm sure there won't be any bank that may have any kind of collaboration with it ever because it's decentralized and unregulated while banks work based on the centralization principles. Of course in crypto-currencies XRP is the favorite one for the banks and surely in coming times the CBDC's will have more dominant position with the banks, but for now we can say that XRP is accepted by some banks if not all.