Banking reform in transition countries involves deciding between 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, likely due to factors like government favoritism and limited new bank entry. Policies and conditions can impact bank quality, and many transition economies face challenges like weak legal systems and financial problems. In the short term, businesses may rely more on self-funding and nonbank financial institutions.