Foreign Ownership and Market Power : The Special Case of European Banks

The paper examines the nexus of foreign ownership and market power in 26 European banking sectors, for the period 1997-2013. The sample comprises 11,761 bank-year estimates of marginal cost and market power, which are then matched with data on the foreign ownership status and presence across all host countries. The analysis reports strong evidence over the significant effect of well-capitalised foreign-owned banks on their monopolistic conduct. There is also a weaker indication that foreign presence leads to higher margins in large-sized foreign banks in fast-growing economies and markets of stricter regulation on capital, in which foreign penetration lies above 14% of the host banking industry