A Horserace or Boost in Market Power? Banking Sector Competition after Foreign Bank Exits

48 Pages Posted: 23 Dec 2015 Last revised: 16 Mar 2016

Aneta Hryckiewicz

Goethe University of Frankfurt; Kozminski University

Łukasz Kozłowski

Kozminski University

Date Written: March 6, 2016

Abstract

Recently, massive bank exits have begun to be observed around the world. What is the effect of such bank behavior on the market power of the remaining banks and on competition between rivals? Do financial crises change this relationship? We test these questions on a sample of 226 foreign banks’ withdrawals, which occurred between 1996 and 2014 in 54 countries. We find that the impact of bank exits on the market power of other banks is non-linear, shaped like a U-curve. Moreover, we document that the largest increase in market power is when a divested bank accounts for around 10% of market share. After this threshold, the effect diminishes and even has a negative sign. In addition, we find that banking market power significantly increases during financial crises; however, in normal times, banks participate in a horserace.

Keywords: banking sector competition, banking market power, foreign banks, bank exits, financial crises

JEL Classification: F21, F23, G21, G01, L16

Suggested Citation

Hryckiewicz, Aneta and Kozłowski, Łukasz, A Horserace or Boost in Market Power? Banking Sector Competition after Foreign Bank Exits (March 6, 2016). Available at SSRN: https://ssrn.com/abstract=2707123 or http://dx.doi.org/10.2139/ssrn.2707123

Aneta Hryckiewicz (Contact Author)

Goethe University of Frankfurt ( email )

House of Finance, Grüneburgplatz 1
Frankfurt am Main, DE Hessen 60323
Germany

Kozminski University ( email )

Accounting Department
ul. Jagiellonska 57/59
Warsaw, 03-303
Poland
(22) 519 21 69 (Phone)

Łukasz Kozłowski

Kozminski University ( email )

ul. Jagiellońska 57/59
Warsaw, Mazowieckie 03-301
Poland

HOME PAGE: http://www.kozminski.edu.pl

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