This study evaluates the cost and the profit efficiency of Italian banking sector over the period
2006-2011. Translog stochastic frontiers are used for this purpose. Following the
intermediation approach, efficiency scores are computed from estimating a model with three
inputs and three outputs. Results show that the average levels of cost and profit efficiency are
both around 90% and they are quite stable over time. However, there is high heterogeneity in
results. Differences have been found when banks are classified by size (efficiency tends to
decrease with size), legal type (cooperatives perform better than others) and area (the best
performers are in the North East of the country).
