History's Roadmap for an End to TAG: Interactive Graphic

To guess what might happen once unlimited deposit insurance ends, look at how corporations have handled their cash lately.

They appear lukewarm about the extra insurance, and comfortable at big banks no matter what. Big business has yanked hundreds of billions of dollars from money market funds since the financial crisis, and stuffed them into bank accounts. When giant banks opted out of an earlier version of the unlimited insurance scheme in 2010, the money kept pouring in regardless. (See the following graphic. Text continues below.)

Money funds may have looked like a worse bet then, of course. They are major financiers to European banks, and the continent’s debt crisis had just surfaced. Paired with the U.S. debt-ceiling standoff, panic over the euro drove growth in checking balances in mid-2011 to a pace that surpassed even that observed in the aftermath of Lehman Brothers’ collapse. A flare-up in tensions this summer did not provoke a repeat, and announcements of more bond buying by central banks appear to have whetted risk appetites.

Still, interest rates are low no matter where the cash-rich go, and predictions about how much money might slosh back into the fund industry have varied.

Analysts at Barclays reckon $150 billion to $400 billion might leave banks, or up to two-thirds of the increase in large-balance deposits temporarily covered by the government since the end of 2010, when a provision of the Dodd-Frank Act took over from an emergency program launched at the height of the financial meltdown. (The bailout legislation in October 2008 raised the limit on insured balances to $250,000 per depositor from $100,000. Later that month, the Federal Deposit Insurance Corp. used its crisis powers to offer unlimited coverage for noninterest bearing transaction accounts under the Transaction Account Guarantee program.)

Analysts at JPMorgan Chase figure that, by and large, depositors will stay put even without the insurance, but that outflows of about $150 billion would still push down short-term yields by freeing up funds to bid on short-dated instruments. (Such pressure would translate into moves measured in basis points, since rates are already so low.) Big banks are not likely to miss the money, which may cost more in insurance assessments and administrative expenses than it earns in interest.

In 2010, after the money-center behemoths withdrew from the emergency FDIC program, banks with more than $100 billion of assets accounted for 75% of the $245 billion increase in deposits exceeding the $250,000 threshold. (That figure includes interest bearing and non-transaction accounts, which are not covered by the temporary insurance. Bank participation under the Dodd-Frank program that began at the end of 2010 is universal.)

Small banks are fighting vigorously for an extension of unlimited insurance against long odds for legislation in an election year.

Temporarily insured balances account for only about 8% of total deposits at banks with less than $100 billion of assets, and alternate sources of funding are available. But individual institutions could be caught flat-footed when the program closes, and its advocates have argued that it levels the playing field with implicit backing for too-big-to-fail competitors.