Market size and market structure in banking

Abstract

Larger markets are usually characterised by a large number of firms. We show this does not hold in banking. Our analysis of banking in Gulf countries suggests the existence of a lower bound to concentration. The bounds are different across countries, however, in all of them, the markets remain concentrated regardless of the market size. We also show that the largest banks are becoming more dominant over time. Most importantly, the values of the limiting levels and the actual levels of concentration are astonishingly close suggesting that the banking markets of the Gulf countries are operating close to long-run equilibrium.