The banking sector in transition economies deserves a special attention of policy makers and the public. The first reason for this attention is that financial intermediation plays a special role in an economy: it channels financial savings of enterprises and households into investments. There is no economic growth in a country if this function is not executed in an effective and efficient way, and if the financial sector is not credible. Therefore reestablishment of a sound banking sector has been crucially important for transition countries. The second general reason is that banks are enterprises of a unique character due to the fact that their performance is important not only to shareholders, as it is the case for enterprises in all other economic sectors, but also to depositors. For that reason the public trust is essential for banking. While its creation is a long and comprehensive process, it is very easy to destroy it. The third reason, specific for transition economies, is connected with the very bad starting point. Under the communism allocation of funds by banks was carried out by outside orders and not by inside business decisions based on profitability and risk assessment. Therefore, at the start up of transition, in the sector of then state-owned banks there was neither know-how and business culture nor internal governance structures relevant for market economies. At the same time the banking sector was the terrain where the biggest change of culture and behavior was necessary in order to build its credibility. This fact made the task difficult and complex. The forth reason is that development of the banking sector in transition economies depends on both macroeconomic policy and microeconomic restructuring of enterprises. That is why it cannot be analyzed in isolation.