Without deposit insurance the money supply would not increase

The banks don’t keep our money safe.

Banks don’t make (conventional) loans, to make a loan requires that someone has been deprived of the asset for the duration of the loan.

When a deposit is made by the customer this results in an increase in the money supply, an equal quantity of bank credit is created as there is cash deposited. The money (from the deposit) held in the bank is removed from circulation and does not alter prices, the bank deposits are now responsible for the price support. The cash deposited generates and becomes bank credit.

Making a deposit returns the cash to the bank as reserves (and removes it from circulation) but extra bank credit is created, causing inflation, so that prices remain as they were. Making a deposit increases the money supply, because the customer is still owed money by the bank in spite of the cash now being part of the reserves. We do not have a fixed deposit as we might expect with full reserves, instead we have been given bank credit instead, and the cash is not hypothecated to us, it forms part of the reserves. We are not really making a deposit, instead we are given bank credit in exchange for our money, the money is not held in reserve, the bank is not acting as a guardian of our money.