Abstract

What is the relationship between religion and risk taking in banking? The Netherlands’ new cooperative movement at the turn of the twentieth century was instigated by religious groups – Roman Catholics, orthodox Calvinists and liberal Protestants. Using quantitative analysis combined with archival business histories, this paper investigates how religion mattered for the banks’ risks in the build-up to, during, and immediately following the price deflation of the 1920s. It finds that the level of risk was partly determined by the relative size of banks’ affiliated religious denomination within their local market. Financial analysis suggests that banks serving small religious groups were less willing and able to take on risks than those serving larger minorities. Evidence from two case studies is consistent with the use of a theory of club goods as an explanation for this finding. Strict membership criteria and the use of personal guarantors in loan agreements acted as strong screening and monitoring devices, regardless of religious affiliation.

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