1 Bank ownership and cost efficiency in Russia, revisited

This paper adds to the literature on banking in transition with regard to the comparative efficien-cy of different bank groups. We use bank-level quarterly data for Russia over the period of 2005-2013 and modify the method of computation of comparative bank efficiency. The contribution is three-fold: (1) We show that revaluations of foreign currency and securities are material because their effects are unevenly distributed among Russian banks, and we control for them in the pro-cess of stochastic frontier analysis (SFA) of cost efficiency; (2) we build more coherent bank clusters by splitting the category of state-controlled banks into two subgroups and applying stricter criteria of foreign strategic control; and (3) using the generalized method of mo-ments (GMM), we estimate a set of distance functions measuring the observed differences in both banks ’ and bank clusters ’ SFA scores, where such distance functions depend on the hetero-geneity in either risk preference or asset structure of the banks. It addresses the causes of the bank efficiency rankings change. Our results suggest that: (1) the elimination of revaluations of foreign currency and securities produces efficiency scores that are higher and less volatile across the board; (2) the spreads between different types of banks in terms of efficiency shrink; (3) o