Faith-based credit unions and credit risk

Abstract

This paper examines faith-based, federally chartered credit unions (CUs) and whether the faith-based affiliation impacts credit risk. Using univariate test, I find that faith-based CUs are riskier–they have lower capital ratios, lower return on assets (ROA), greater volatility in ROA, and more defaults. In multivariate tests, I find that faith-based CUs have significantly more one, three, and five-year forward-looking credit risk than similar CUs. The results seem to be driven by riskier loans, reliance on noninterest income, and fewer fulltime employees. The findings suggest that while research has established that religiosity reduces risk-taking, in some cases it can increase it.