Banking reform in transition countries can be done by either fixing existing state-owned banks or creating new private banks. Research shows that progress is faster with new private banks, especially in countries with poor initial conditions. Weak banks in most countries have not improved much due to factors like government favoritism and limited new bank entry. The quality of banks can be influenced by policies and conditions. Transition economies face challenges like weak legal systems and financial problems. In the short term, businesses may rely more on self-financing and nonbank financial institutions.