We examine the effects of different organizational structures between Japanese cooperative Shinkin banks and
stockholder owned regional banks on technical inefficiency, technological change, and shadow prices of problem loans
during fiscal years 2001 to 2004. We estimate a frontier production technology where banks knowingly generate an undesirable
output (problem loans) in the process of producing a portfolio of loans and securities. The frontier technology of
production is derived from the work of Färe et al. (2005) and estimated using the deterministic linear programming
method of Aigner and Chu (1968). Regional banks are less efficient in absolute terms, but not in relative terms, than
Shinkin banks. Regional banks also experienced faster technological progress and had a higher cost of reducing problem
loans than than Shinkin banks.