In this paper, a frontier cost function is estimated to test the X-inefficiency of Korean commercial banks in comparison to Japanese and American banks. The results show that the efficiency of Korean banks sharply decreased for a total of two years before and after the funding from IMF. In 1998, the efficiency was at the lowest point, but after the restructuring of Korean banks, the efficiency appeared to rise. During this two-year period, the efficiency of American banks didn`t fluctuate. Moreover, the efficiency of Japanese banks fell only a little in 1998, affected by the Asian monetary crisis. Using only Korean banks` data, the results show that the efficiency of Korean banks didn`t drop much, indicating that the fluctuation due to the Asian monetary crisis is not detected well by the frontier cost function. This suggests that if some banks face a sudden shock during some periods, international comparison is needed to accurately capture the rapid movements of efficiency.
