Is there a Gap in Bank Efficiency between CEE and Western European Countries?

This paper aims at comparing the efficiency of banks from Western European countries and Central and Eastern European (CEE) countries to assess the performance gap between both groups of banks. We measure cost efficiency on a sample of 955 banks from 17 European countries with the stochastic frontier approach. We conclude the following: (a) there is a gap in bank efficiency between CEE and Western European countries, (b) this gap was reduced between 1996 and 2000 for most CEE countries, and (c) this gap is partly explained by differences in environment, but not by differences in risk preferences. Comparative Economic Studies (2007) 49, 101–127. doi:10.1057/palgrave.ces.8100183