FACULTY AND RESEARCH

The internationalization and deregulation of banking systems make convergence analysis of their performance essential. In the present article, we focus on the evolution of production performance and costs of banking sectors in major OECD countries. The convergence of these indicator levels is assessed using methods based on distance functions. This approach not only provides a historical perspective of banking system performance but also enables to compare it with the best practices within the sample without imposing too restrictive assumptions such as technical or allocative efficiency or constant returns to scale. The empirical study concerns seventeen countries, eight of which in the Eurozone, over the period 1988-1998. The results show statistical evidence of catching-up with leading countries situated on the frontiers of production and cost efficiency. If our results indicate that the convergence process of banking system performance is a complex phenomenon, it undeniably reveals catching up effects of the national sectors with the leaders located on their production and cost frontiers.