Local religious beliefs and bank risk-taking

Abstract

This study investigates whether the heterogeneity in religious attributes between Catholics and Protestants reflects in bank risk-taking behavior. We find that banks located in areas with higher concentrations of Catholics relative to Protestants take less risks. The result is robust to several alternative specifications. Further analyses reveal that the result is driven primarily by local banks that operate in only one county. For such banks, local investors are economically more important. We show that these banks make safer investments, which results in fewer write-downs. They also generate less revenue from nontraditional banking activities, which are unsteady revenue sources.