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

Ownership and competition in the banking sector are policy concerns around the world that are rarely comprehensively examined. For 131 countries and 13 years we match bank ownership with over 50,000 bank-year estimates of individual bank market power. At the individual bank level, ownership does not explain market power. At the country level, on the other hand, foreign bank ownership has a positive and significant impact on bank market power because foreign banks enter through mergers or acquisitions and not through greenfield investments. We also find that the positive effect of foreign bank presence on market power is considerably weaker in countries with well-capitalized banks.