Public Deposit Laws Inhibit Opportunity in the Deep South

Hundreds of rural communities across the Deep South have credit union branches, but state laws prohibit local governments from using them for their banking needs, even when the credit union is the only branch in town.

These state law restrictions hinder economic opportunities in a number of ways, ranging from local choice in establishing a financial ecosystem that best serves their community to having access to capital for things like mortgages and small business loans.  This is because an important function of how much any financial institution can lend out to the communities it serves is how much in deposits it holds in accounts.  While deposits can come from individual consumers, they can also come from institutions, like companies or governmental entities. For financial institutions serving low-income people and places, deposit levels will be lower than other financial institutions, and thus, utilizing deposits from institutions is a way to still meet the demand for the services that communities need. 

The majority of states allow both banks and credit unions to receive the deposits of governmental entities, which are taxpayer dollars otherwise known as “public deposits.” However, several states, including states in the Deep South, prohibit credit unions from receiving these public deposits. In states with such restrictions, banks maintain a monopoly on holding these public deposits, which limits communities’ choices for meeting their financial needs. This blog provides an initial look at public deposit laws across HOPE’s footprint and what that means for the communities it serves.

Public Deposits in the Deep South

Each of six states in HOPE’s footprint – Alabama, Arkansas, Georgia, Louisiana, Mississippi, and Tennessee – prohibit credit unions from holding public deposits in the same way that banks can.  In fact, five of the six states prohibit it outright. Louisiana allows credit unions to hold public deposits in limited capacity, but subject to limitations that do not apply to banks.¹ Based on data from the Urban Institute on state budgets and federal dollars transferred into the states, there are at least $290 billion in public deposits across HOPE’s six-state footprint.² With the limited exception of Louisiana, these dollars cannot be deposited with credit unions. See Figure 1.

Table 1: Summary of Public Deposits Laws in the Deep South

This estimated $290 billion also includes federal dollars passed through to the states. These state law restrictions also apply to these federal transfers, even though credit unions are otherwise allowed to hold federal dollars.  Additionally, a significant portion of state-dollars flow to local governments, government agencies, and local entities like schools, colleges, and fire departments, each of which has their own banking needs. State laws in the Deep South prohibit credit unions from fulfilling those needs as well. This is not to say that credit unions should or would fully absorb all of these public monies. Rather, it highlights the scale to which public dollars are out of reach to many communities in the Deep South as a tool for diversifying and strengthening their financial ecosystems.  

Impact on Rural Communities

HOPE estimates that these state public deposit laws restrict the choices for nearly 500 rural communities in the Deep South. Across HOPE’s six-state footprint, 497 rural cities had a credit union branch present as of 2024, and of these, more than two dozen (29) had a credit union branch but no bank branch.³ For a small, rural town, the ability to work with a credit union could be particularly helpful in meeting their banking needs and preserving capital access.

Itta Bena, Mississippi is an illustrative example. Itta Bena is a small town in the heart of the Mississippi Delta, home to a rich cultural history and important community infrastructure. For example, it is home to Mississippi Valley State University (MSVU), a public HBCU which has hosted national leaders such as former chair of the Federal Reserve Jerome Powell and most recently the bi-partisan Commission on Rural Prosperity.  Itta Bena has a population of about 1,900 people, where over 90% of the residents are Black and the median individual income is about $20,000.⁴ In 2015, Regions Bank donated its Itta Bena branch to Hope Credit Union and provided resources to HOPE to preserve banking access in the community. Hope Credit Union has been the only depository institution in Itta Bena for more than a decade.

Even though people and businesses are able to hold accounts and place deposits with Hope Credit Union, public entities such as the city and MSVU cannot due to Mississippi’s state law prohibiting credit unions from serving as a public depository.⁵  As such, no portion of either MSVU’s multi-million dollar annual budget nor any of the city’s roughly quarter-million dollars of cash deposits from its general fund and federal grant dollars could be placed in a HOPE account. This also means that people who work at these public institutions have to travel to other towns in order to handle basic banking needs, raising issues of security and inefficiencies.

Despite this state law barrier, HOPE is helping Itta Beta in other ways, such as providing a recoverable loan to the city in order to help enhance its capacity to draw down federal community investment dollars, and earlier this month hosting a financial empowerment event at MSVU for its students, faculty, and staff.

Trends in Public Deposit Laws Outside of the Deep South

The majority of states allow both credit unions and banks to hold public deposits.⁶ For the roughly dozen states with prohibitions for credit unions, these laws are vestiges of a time before federal deposit insurance existed for credit unions, as it long had been for banks.  However, such insurance has now existed for decades through the federal National Credit Union Administration (NCUA), which ensures that deposits up to $250,000 are backed by the full faith of the U.S. government, just as it exists for banks through the Federal Deposit Insurance Corporation (FDIC).

Many states have recently changed their laws to allow credit unions to receive public deposits, either in parity with banks or in some limited capacity.  For example, in 2025, the Wyoming legislature passed a law allowing credit unions to receive state and local deposits.⁷  Also in 2025, Oklahoma changed its law, similar to Louisiana, to allow credit unions to hold public deposits in certain types of savings accounts.⁸ In 2024, Florida enacted a law allowing qualified credit unions to be depositories for up to seven percent of the public monies held by the state Treasurer and seven percent of the funds held by state colleges and universities.⁹  And, there are many proactive bipartisan attempts in several other states, such as South Carolina, Virginia, Massachusetts, New York, and Colorado.

Looking to the Future

Allowing public deposits to be held with credit unions as well as banks provides a stronger placed-based banking system for local communities. It expands economic opportunities by enhancing capabilities for capital deployment, affordable financial products, and services for public entities. For communities in which a credit union is the only depository present, it would provide local government entities the option to bank locally with people and organizations committed to the prosperity of their community.  By increasing the range of safe and sound depository institutions, such as credit unions, from which governmental entities may choose in meeting their financial needs, they may be able to obtain the best range of services tailored to their community. 

Over the coming months, HOPE will be exploring this issue in more depth, digging into both the impact of these laws on the communities we serve and the opportunities that could be possible if there is meaningful choice within the marketplace for state and local governments to banking with the financial institution best suited to their needs.

Footnotes

                      

1. LA. REV. STAT. § 33:2955 (allowing “municipalities, parishes, school boards, and any other political subdivisions of the state” to place public dollars into  “share accounts and share certificate accounts of federally or state-chartered credit unions issuing time certificates of deposit”); LA. REV. STAT. § 39:1213 and § 6:949 (providing that only institutions that are stock-owned and ensured by the FDIC, i.e. banks, can serve as fiscal agents for government entities). ↩︎
2. Urban Institute, State Fiscal Briefs, available at https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/projects/state-fiscal-briefs.  The totals in Figure 1 do not account for additional revenue raised by local government or other entities that comprise their individual budgets, such as taxes and fees.  As such, this estimate is conversative in that regard. ↩︎
3. Hope Policy Institute analysis of FDIC and NCUA branch data (as of 2024) and USDA 2023 Rural-Urban Continuum Codes, both downloaded via PolicyMap on July 25, 2026.  Communities with a RUCC code of 4 through 9 were designated as “rural” for this analysis. ↩︎
4. U.S. Census, 2024, American Community Survey Five Year Estimates, Tabel S0601, Selected Characteristics of the Total and Native Populations in the United States. ↩︎
5. MISS. CODE §27 105-5 (state entities); §27 105-315 (counties); and  §27-105-353 (cities). Deposits may only be made with qualified depositories. To be a qualified depository, the financial institution must have FDIC deposit insurance coverage. ↩︎
6. America’s Credit Unions, Public Deposit Authorities by State. ↩︎
7. SF 143 (2025), https://wyoleg.gov/2025/Enroll/SF0143.pdf  ↩︎
8. SB 957 (2025), https://www.oklegislature.gov/BillInfo.aspx?Bill=SB957&Session=2500 ↩︎
9. HR 989 (2024) https://www.flhouse.gov/Sections/Documents/loaddoc.aspx?FileName=_h0989er.docx&DocumentType=Bill&BillNumber=989&Session=2024  ↩︎