Thousands of new commercial banks have been chartered in the U.S. over the past two decades. This article documents how the financial characteristics of new banks evolve over time, develops a simple theory of why and when new banks fail, and tests the theory using a variety of methods.

A proposed bank merger and acquisition (M&A) provides a unique opportunity to address too big to fail concerns—the problem of big banks taking undue risks due to creditors’ perceptions that government policymakers will bail them out to prevent spillovers from bank collapse. Under a...