Efficiency and technical progress in banking - Empirical results for a panel of German cooperative banks

Using 1989-1992 individual data of 757 German cooperative banks and applying the intermediation approach we specify a multi-product translog cost function for this part of the German banking industry. For all size classes moderate economies of scale can be identified. There is also evidence of economies of scope which supports the notion of universal banking. As for cost efficiency, we find that the average banks in all size classes deviate considerably from the best practice cost frontier. All banks enjoy growth of total factor productivity, which is higher for the smaller banks in the sample.