This unique study examines the interactive role of bank competition and foreign bank entry in explaining the risk … stability. Furthermore, the joint effect of bank competition and foreign bank entry brings financial fragility because host … banks tend to make risky investments due to undue competition induced by foreign bank entry. We support the competition …

, thereby leading to lower rents for banks and greater competition in the domestic banking sector. We also predict that banks …-side (i.e., banks not willing to lend to firms). Overall, we document how competition from overseas financial markets …

(Gabaix, 2011) for the banking sector, introducing Bertrand competition and heterogeneous banks charging variable markups …. Using this framework, we show conditions under which idiosyncratic shocks to bank lending can generate aggregate … sector for many countries is indeed granular, as the right tail of the bank size distribution follows a power law. We then …