OPERATIONAL EFFICIENCY IN BANKING - AN INTERNATIONAL COMPARISON

In this paper, we estimate a global cost function for international ba nks to test for both input and output inefficiencies, Our results for 1988-1992 suggest that for banks in 15 countries, the prevalence of in put X-inefficiencies far outweighs that of output inefficiencies (as m easured by economies of scale and scope). Moreover, our results sugges ts that the distribution-free model overestimates the magnitude of X-i nefficiencies relative to the stochastic cost frontier approach. Large banks in separated banking countries (that prohibit the functional in tegration of commercial and investment banking) had the largest measur e of input inefficiency amounting to 27.5 percent of total costs as we ll as significant levels of diseconomies of scale, All other banks hav e X-inefficiency levels ranging in the area of fifteen percent of tota l costs with slight economies of scale for small banks.