This thesis employs the Stochastic Frontier Analysis approach to evaluate the cost efficiency of 24 domestic banks in Taiwan. Sample period is from 1995 to 2009. The influence of statistical noise effects resulted from the bank’s total assets, the number of branches and the rate of non-performing loans on the cost efficiency is also studied. The empirical results show that the domestic banks in Taiwan possess 10.38%(1-0.8962) cost inefficiency during the sample period. Besides, the impact factors, the bank’s total assets and the number of branches, have significant positive relationship with cost inefficiency. The lowest cost efficiency of Taiwan’s 24 banks appears in 2008. It indicates that the global financial tsunami was obviously influential to the cost inefficiency.