How does foreign entry affect domestic banking markets?

Using 7900 bank observations from 80 countries for the 1988-1995 period, th is paper examines the extent and effect of foreign presence in domestic ban king markets. We investigate how net interest margins, overhead, taxes paid , and profitability differ between foreign and domestic banks. We find that foreign banks have higher profits than domestic banks in developing countr ies, but the opposite is the case for developed countries. Estimation resul ts suggest that an increased presence of foreign banks is associated with a reduction in profitability and margins for domestic banks. (C) 2001 Elsevi er Science B.V. All rights reserved.