Since regaining independence, Ukraine has been transforming its economy towards the free market. One of the key elements in the process has been the creation of a two-tier banking system, which is a crucial part of the overall market infrastructure.

The new banking system was being launched and went through the first development stages under a deepening economic crisis. Hyperinflation (in 1993 the CPI stood at 10,256%) and the sweeping recession had a distortionary effect on the fledgling banking system. Under that period, its development was "horizontal", which manifested itself in the rise of the so-called "new wave" banks. The Ukrainian banking system, like the rest of the economy, was adversely affected by the government's attempts to find a "third way" in their economic policy. The failure of these attempts has refuted the myth of any "third way" existing in a transition towards market economy. The effects of the unfortunate experiments of the early 90s are still visible in the current situation of the Ukrainian economy.

Another factor crucially important to the development of the banking system have been the two currency reforms, one carried out in 1992 and the other in 1996.

Ukraine's present financial system with its banking core can be described as the "Rhine" type system, i.e. built along on German or Japanese model.

While the banking system has a major impact on the economy in general, the relationship is mutual and the economic situation directly affects the position of the sector. In order for the system to develop freely in the future, it is necessary to continue market reforms and build other free market institutions, notably a securities market.

The current situation of the banking system in Ukraine can be described as unsatisfactory. Among the factors affecting the banking system negatively are slow market reforms, a sizeable "gray" economy, a high degree of dollarisation of the economy, the popularity of barter exchange and the widespread phenomenon of "payment jams" resulting from liquidity shortage. Having said that, it is necessary to add that the experience gained so far should enable Ukraine to continue to build its free market banking system successfully.