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

Listed author(s):
  • Franziska Bremus

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.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.433715.de/dp1344.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1344.

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Length: 45 p.
Date of creation: 2013
Handle: RePEc:diw:diwwpp:dp1344
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