This paper examines the impact of regulatory reform on the performance of Spanish savings banks. To this end it uses panel data for the period 1986-1995 and a flexible variable profit function that incorporates timevarying technical efficiency. The focus is whether increased competition brought on by deregulation affected performance of banks over time. Bank performance, measured by the percentage change in profitability, ceteris paribus, is decomposed into technical change and change in technical efficiency both of which are defined in terms of the profit function. We also examine output technical efficiency, which is defined in terms of the production possibility frontier. Several alternative models with different specifications of technical efficiency are used to check robustness of the results. Empirical results show declining levels of output technical efficiency along with a significantly high rate of technical progress. In spite of declining technical efficiency during this period, we find evidence of an increasing trend in productivity growth.
JEL Classification Number: L94* We thank Allen Berger on an earlier version of the paper. However, we alone are responsible any any remaining errors. LozanoVivas acknowleges the financial support from the DGICYT, PS95-0176.2
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