Competition, in the absence of market imperfections, induces the efficient allocation of resources, thus, enhancing profitability. As new firms enter the more profitable segments of the competitive market, excess returns are effected, while firms that are operationally inefficient or unable to innovate are forced to exit the market. The modern paradigm on banking-sector competition and profitability is rendered, nevertheless, inconclusive due to the prominence of so-called ‘global systemically important financial institutions’ (GSIFIs). The latter combine retail, commercial and investment banking activities spread over several interdependent financial systems and economies, and are able to utilize high-risk innovative financial instruments in order to enhance excess profitability. Our analysis investigates the concurrent effect of competition and foreign ownership on bank profitability. We use data on systemically important banks extracted from 15 European Union (EU) member countries over the years 1995-2013. To assess competition pertaining to each banking system, we follow the structure-conduct-performance (SCP) approach using the Herfindahl Hirschman Index (HHI) on market concentration. Since a concentrated market structure may be the result of agglomeration due to more efficient bank-performance contrary to the SCP approach, we treat each variable as endogenous. We estimate a dynamic factor model assuming the existence of common unobserved factors following an autoregressive process stemming from informational asymmetries and network externalities prevalent in the integrated EU and Eurozone banking systems. We expect to find that the effect of efficient performance on further enhancing competition is significant, consistent with effective use and dissemination of information and increased network consolidation. The model is policy relevant, since efficient forecasts of the model variables and the unobserved factors may enhance effective prudential regulation design.