Financial liberalisation is the process of financial development that reduces the extent of government control over the financial industry. It is argued that a liberalised financial system is a fundamental prerequisite for more efficient allocation of savings and investment, which in turn leads to greater economic growth. Financial liberalisation includes the freeing up of interest rate controls, exchange and capital controls, entry of foreign banks, and the deregulation of banking sector. The latter process, which comprises the deregulation of bank structure and conduct rules and the concomitant reregulation of bank prudential supervision, is generally targetted to improve the efficiency and productivity of banks. On the other hand, financial liberalisation and basic deregulation have also (been) precursors to many banking and financial crises. This study examines the effects of deregulation on the Thai banking sector during 1990- 97 using a two-stage approach. In the first-stage analysis, the relative efficiencies and productivity of each bank in each year are measured using DEA techniques. In the second-stage, regression techniques are used to evaluate the impact of financial deregulation on efficiency and productivity, controlling for bank-specific attributes. The main findings regarding bank efficiency are that on average banks operating in Thailand hardly improved their technical, allocative and cost efficiencies, except in 1996 and 1997. Most banks were better at optimising their input mix than minimising their usage and costs of inputs. There was a clear association between size and cost efficiency for the domestic Thai banks, and on average their cost efficiencies were greater than those of the foreign bank branches, all other things being equal. However, the majority of the banks on the best-practice efficient frontier were foreign, and the smallest Thai banks were the least efficient of all the banks studied. The average productivity of foreign banks increased over the period studied, and this was mainly due to outward shifts of the production frontier each year (technological progress) rather than improvements in relative efficiency. The average productivity of domestic banks did not change over time, as technological progress was offset by moves away from the best-practice frontier. Overall, the evidence for the postulated beneficial effects of deregulation is somewhat mixed. Improvements in total factor productivity were driven by the huge expansion in lending made possible by the liberalisation, but these increases in productivity were mainly achieved by the foreign bank branches whose operations were supported by substantial amounts of financial capital from their parents. Productive efficiency of the domestic banks did improve over the period of study, but these improvements were greatest for the large and medium size banks, thus widening the gap between the most inefficient group of small Thai banks and the rest of the banking sector.