Market power among UAE banks: The 2008 financial crisis and its impact

This paper investigates the impact of the global financial crisis with respect to the level of market power across 31 banks in the UAE. By employing the Lerner index and exploring the evolution of market power over time, we observe that the financial crisis had a negative effect on UAE banks, which lost a substantial degree of their market power. Furthermore, bank-level market power during the crisis period appears to have varied significantly with respect to certain bank characteristics. Specifically, the market power of those banks that were less-capitalized and less efficient, decreased particularly significantly during the crisis period. Interestingly, banks with a high level of market share were also unable to preserve their power. We compare these results systematically with those obtained for banks located in the MENA region. Overall, our results support the argument that the crisis severely reduced bank performance, not only in advanced economies, but also in emerging markets, although the adverse outcome is heterogeneous across specific banks.