An Assessment of Portuguese Bank's Costs and Efficiency

This paper analyses the production technology of Portuguese banks during the 1992-2004 period through the estimation of a translog cost frontier. Banks are modelled as firms which produce loans and other earning assets, choosing the cost minimizing combination of labour, capital and interest bearing debt, subject to holding a predetermined level of equity. According to the results of this study, technological progress has shifted the cost frontier downwards throughout the period under consideration, whereas banks seem to have operated at the same distance   <br>from the frontier. Further, increases in production under scale economies have also contributed to the recorded increase in productivity.