Cross-Border Banking, Bank Market Structures and Market Power: Theory and Cross-Country Evidence

48 Pages Posted: 30 Jan 2014

See all articles by Franziska Bremus

Franziska Bremus

German Institute for Economic Research (DIW Berlin)

Date Written: December 2013

Abstract

Patterns in cross-border banking have changed since the global financial crisis. This may affect domestic bank market structures and macroeconomic stability in the longer term. In this study, I theoretically and empirically analyze how different modes of cross-border banking impact bank concentration. I use a two- country general equilibrium model with heterogeneous banks developed by De Blas and Russ (2010) to grasp the effect of cross-border lending and foreign direct investment in the banking sector on bank market structures. The model suggests that both cross-border lending and bank FDI mitigate concentration. Empirical evidence from a linked micro-macro panel dataset of 18 OECD countries supports the theoretical predictions: higher volumes of bank FDI and of cross-border lending coincide with lower Herfindahl-indexes in bank credit markets.

Keywords: cross-border lending, bank foreign direct investment, bank market concentration, net interest margins

JEL Classification: E44, F41, G21

Suggested Citation

Bremus, Franziska, Cross-Border Banking, Bank Market Structures and Market Power: Theory and Cross-Country Evidence (December 2013). DIW Berlin Discussion Paper No. 1344. Available at SSRN: https://ssrn.com/abstract=2387521 or http://dx.doi.org/10.2139/ssrn.2387521

Franziska Bremus (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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