Abstract

This section describes the prereform financial system in the PCPEs and discusses the main reforms these countries have instituted to date in the banking sector. As a result of the reforms, the central banks have divested themselves of their commercial banking operations and instituted a “two-tier” banking system. However, a large proportion of the newly instituted banks are state-owned; although financial markets—money markets, in particular—are developing, equity markets are in their infancy or are nonexistent.