More Insurance, More Deposits?

This paper examines how uninsured deposits influence credit union funding and whether private excess deposit insurance alters the stability, pricing, and lending capacity of uninsured deposits — deposits that exceed the federal deposit insurance limit. Using U.S. credit union Call Report data from 1995–2022, we exploit variation across institution size, insurance regime, and participation in optional private excess deposit insurance. We distinguish between pre-crisis (1995–2007) and post-crisis (2009–2022) periods surrounding the 2008 expansion of federal insurance limits. We document pronounced heterogeneity across the size distribution. For small credit unions, uninsured deposits are limited in scale and are associated with lower loan intensity. In contrast, uninsured deposits play a central funding role for large credit unions, which account for 94% of industry assets and 97% of uninsured deposits. For these institutions, uninsured deposits support lending and command higher funding costs — effects that are significantly moderated by excess deposit insurance, reducing funding costs by approximately 27 basis points during the pre-crisis period. Following 2008, excess insurance participation declines among large institutions but increases modestly among small firms. Overall, excess deposit insurance functions as a partial substitute for federal coverage, stabilizing uninsured funding without increasing delinquency rates — evidence against moral hazard.