Religiosity and bank lending: evidence surrounding the pandemic in the USA

Abstract

Purpose

The purpose of this study is to investigate the impact of religiosity on banks’ lending behavior during the COVID-19 pandemic in the USA.

Design/methodology/approach

This study uses the evidence from the issuance of Paycheck Protection Program (PPP) loans to relate local religiosity to banks’ participation in the PPP loan program and to banks’ loan portfolio performance during the pandemic.

Findings

The results of this study show that banks located in more religious counties have a higher level of lending through the PPP, supporting the ethical and moral concerns cultivated by local religious beliefs. In addition, banks’ lending before the pandemic is more prudential in more religious areas, as reflected in lower losses and higher returns at the onset of the crisis, especially in areas where business activities were most disrupted, supporting the stewardship role encouraged by religiosity.

Originality/value

Thanks to the structure of the PPP loans programs, the authors are able to disentangle the conflicting effects of morality and prudence on banks’ behavior.

Citation

Baradwaj, B.G., Dewally, M., Hong, L. and Shao, Y. (2023), "Religiosity and bank lending: evidence surrounding the pandemic in the USA", Studies in Economics and Finance, Vol. 40 No. 3, pp. 527-548. https://doi.org/10.1108/SEF-07-2022-0381