A multiproduct translog normalized shadow profit function is used to examine X-efficiency and related issues with respect to Taiwan’s banking sector. The model developed here is theoretically more appropriate compared to that proposed by Berger, Hancock, and Humphrey (1993); as the former is obtained within the framework of profit maximization. Parameter estimates from our parametric translog profit function are shown to be robust against different model specifications. More than half of all potential profits are estimated to be lost due to economic inefficiency. The relatively more important role of technical inefficiency, compared with that of allocative inefficiency, implies that deficient output revenues outweigh excessive input costs. Translog evidence indicates that larger banks tend to be more technically efficient than smaller ones. The data show strong technical progress during the sample period, while the model failing to include X-inefficiency yields no technical advance.