Concentration and Foreign Penetration in Latin American Banking Sectors: Impact on Competition and Risk

38 Pages Posted: 25 Apr 2011

See all articles by Eduardo Levy Levy-Yeyati

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business

Alejandro Micco

University of Chile

Multiple version iconThere are 3 versions of this paper

Date Written: November 2003

Abstract

In recent years, Latin American banking sectors have experienced an accelerated process of concentration and foreign penetration that has prompted diverse views regarding its implications for the competitive behavior of banks and for the financial stability of the system as a whole. Exploiting a rich bank-level balance sheet database for eight Latin American countries, we examine the evolution of concentration and foreign penetration indicators and their impact on competition and risk. We find that, while concentration did not reduce competition in the industry, foreign penetration appears to have led to less competitive banking sectors. Moreover, we find banking sector fragility to be positively related to competition and, through this channel, negatively related to foreign participation, despite the fact that foreign banks in the region are associated with higher insolvency risk due to higher leverage ratios and more volatile returns.

Suggested Citation

Levy-Yeyati, Eduardo Levy and Micco, Alejandro, Concentration and Foreign Penetration in Latin American Banking Sectors: Impact on Competition and Risk (November 2003). IDB Working Paper No. 417. Available at SSRN: https://ssrn.com/abstract=1818706 or http://dx.doi.org/10.2139/ssrn.1818706

Eduardo Levy Levy-Yeyati (Contact Author)

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

Alejandro Micco

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

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