This study applies the Dynamic Slacks Based Model (DSBM) developed by Tone and Tsutsui (2010) in order to assess the evolution of input saving/output increasing potentials in major Brazilian Banks from 1996 to 2011. We propose that these potentials or slacks can be used as proxies for an eventual financial distress situation in the future. The main research objective is to determine whether or not different characteristics of bank type – related to ownership, size, and merger and acquisition processes – are significantly related to inefficiency levels and, by extension, to an eventual financial distress situation, since higher inefficiency levels also imply lower input saving/output decreasing potentials. Based on a balanced panel model, secondary data from Economatica were collected and analyzed. Results indicate higher inefficiency levels and slacks in small public and national banks. Policy implications are also addressed. 
Financial distress drivers in Brazilian banks: A dynamic slacks approach