ABSTRACT
Underlying the studies reviewed in prior chapters is a conventional definition of operating efficiency as the difference between output volume and input cost. This conception has already been criticized as ambiguous. It is also an insufficient indieator ofwhieh banking firms over time will flourish and whieh will not. The simple eoncept of operating efficieney is flawed because it ignores the time dimension of banks' strategic problem. Operating efficieney per se implicitly focuses on the short-run problem of eost minimization, on the assumption that many asset eommitments are locked in. But banking-firm survival depends at least as much on its competitive effieieney-its ability to generate stable, longterm growth by finding revenue-generating activities while avoiding or shedding excessive risks.
