This paper uses a parametric approach within a translog cost function framework to estimate the economies of scale and scope in Macau’s banking sector from 1995 to 2006. The results indicate significant diseconomies of scale and economies of scope for Macau banks throughout the sample period regardless of their size and ownership. Further analysis provides evidence of significant product-specific economies of scale and scope, which vary according to bank size and ownership. The findings suggest that Macau banks should diversify their asset portfolios to gain greater cost advantage. However, expansion in size should be discouraged under current technology because it appears to be cost ineffective. In addition, our findings lend strong support to the implementation of the universal banking model in Macau.