Determinants of Financial and Temporal Endurance of Commercial Banks during the Late 2000s Recession: A Split-Population Duration Analysis of Bank Failures

Xiaofei Li and Cesar Escalante ()

Journal of Applied Finance & Banking, 2016, vol. 6, issue 4, 1

Abstract: This paper presents an application of the split-population duration model in identifying operating strategies and structural attributes of commercial banks that increased their financial and temporal endurance (translated into probability and duration of survival, respectively) during the late 2000s recession. This study’s results identify the isolated effects of certain variables on a bank’s temporal endurance that have not been captured by other commonly used survival models. For instance, delinquency rates for consumer and industrial loans have separate adverse effects on the banks’ chances of survival and temporal endurance, respectively, while real estate loan delinquency rates negatively affect both survival parameters. Aside from the loan portfolio composition effects, interest rate risk, fund sourcing strategies, and business size could also significantly influence a bank’s survival through the financial crises.

Date: 2016
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