Foreign ownership and market power in banking: Evidence from a world sample

Using a novel global data set with bank-year estimates of market power, we examine the impact of (i) the ownership status (foreign or domestic) of individual banks and (ii) the country-level trends in foreign bank presence on our market power estimates. We find that the ownership status of individual banks does not explain banks’ market power. In contrast, the country-level trends in foreign bank ownership have a positive and significant effect on banks’ market power that is primarily due to the fact that most foreign bank entry occurs through mergers and acquisitions and not through de novo penetration. We also find that the positive nexus between foreign bank presence and market power is considerably weaker in countries with well-capitalized banks.