The Impact of Institutional Factors on the Efficiency of Banking System in Iran

In this study, the impact of some institutional factors such as, macroeconomic conditions and country's political stability on the efficiency of Iranian's banking system during 1372-1387, is investigated. The Vector Auto Regression analyses are chosen for this purpose. We found that, in Iranian banking system, on average, banks are able to save 35-45 percent of their total cost if they were operating efficiently. Another important finding of the paper is that in Iranians context, there is a significant and negative relationship exists between inflation rate indexes as a proxy for macroeconomic stability condition and banking efficiency.