The failure of new entrants in commercial banking markets: a split-population duration analysis

Almost one in four of the new commercial banks chartered in the United States during the 1980s failed. This study uses a split-population duration model to examine failure patterns and failure determinants for these banks and compares the results to a benchmark model estimated for small established banks. The results are consistent with a “life cycle” pattern of new bank failure: compared to small established banks, newly chartered banks are initially less likely, then substantially more likely, and finally equally likely to fail. These patterns were most extreme for banks chartered just prior to the banking recession of the late 1980s or early 1990s.