Explaining market power differences in banking: a cross-country study

Abstract

This paper presents evidence on the impact of bank-specific, regulatory, institutional, macro and financial development variables on competition in banking, using information at both national and bank level. With this aim, Lerner indices of market power are estimated using a sample of 10,479 annual observations over the period 1995-99 across 58 countries. Results show that although bank-specific characteristics explain a substantial proportion of market power, market structure variables and, above all, the level of financial development also help to explain the differences observed in the levels of banking competition. Regulatory impediments to competition are not significant when controlling for financial development.

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