LAUSR

Abstract The change in crossborder financial intermediation and rise in regional banking have consequences for competitive conduct in emerging countries' banking markets. Using data from the Association of Southeast Asian Nations countries' banks during 2011–2018, we examine the nexus between foreign ownership and banks' market power by controlling for the heterogeneity of foreign banks concerning their countries of origin (advanced vs. emerging and regional vs. nonregional). We find that the increasing presence of foreign banks from advanced countries is associated with lower bank market power because of higher marginal costs and lower price–cost margins of the domestic banks. However, the increasing presence of emerging countries’ banks is associated with higher bank market power because of lower marginal costs and prices of domestic lenders. Our findings have implications for policies regarding bank competitiveness and promoting regional banking integration because domestic banks conduct differently under increased participation levels of advanced and emerging country foreign banks.