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

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  • Robert DeYoung

Abstract

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.

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  • Robert DeYoung, 2003. "The failure of new entrants in commercial banking markets: a split‐population duration analysis," Review of Financial Economics, John Wiley & Sons, vol. 12(1), pages 7-33.
    • Handle: RePEc:wly:revfec:v:12:y:2003:i:1:p:7-33
    DOI: 10.1016/S1058-3300(03)00004-1
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    References listed on IDEAS

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    1. Wheelock, David C & Wilson, Paul W, 1995. "Explaining Bank Failures: Deposit Insurance, Regulation, and Efficiency," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 689-700, November.
    2. DeYoung, Robert & Hasan, Iftekhar, 1998. "The performance of de novo commercial banks: A profit efficiency approach," Journal of Banking & Finance, Elsevier, vol. 22(5), pages 565-587, May.
    3. DeYoung, Robert & Goldberg, Lawrence G. & White, Lawrence J., 1999. "Youth, adolescence, and maturity of banks: Credit availability to small business in an era of banking consolidation," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 463-492, February.
    4. DeYoung, Robert, 2003. "De Novo Bank Exit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 711-728, October.
    5. Enrico Santarelli, 2000. "The duration of new firms in banking: an application of Cox regression analysis," Empirical Economics, Springer, vol. 25(2), pages 315-325.
    6. Gary Whalen, 1991. "A proportional hazards model of bank failure: an examination of its usefulness as an early warning tool," Economic Review, Federal Reserve Bank of Cleveland, vol. 27(Q I), pages 21-31.
    7. David C. Wheelock & Paul W. Wilson, 2000. "Why do Banks Disappear? The Determinants of U.S. Bank Failures and Acquisitions," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 127-138, February.
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    Cited by:

    1. Zhiyong Li & Chen Feng & Ying Tang, 2022. "Bank efficiency and failure prediction: a nonparametric and dynamic model based on data envelopment analysis," Annals of Operations Research, Springer, vol. 315(1), pages 279-315, August.

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