The article outlines the most significant changes in the banking sector and traces its possible future path in Central and Eastern Europe (CEE) in the context of competing banking models. The main ...conclusion is that despite the transition the orientation of the banking sector will be towards the goverment sector (including the central bank). The new network of financial interrelations that emerged during transition is characterised by the banking sector's significant net defensive position and creditor passivity. Although CEE countries are developing their financial systems in line with a universal banking model the aggregate balance sheets of their banking sectors reveal a structure that is more in line with other proposed models. Financial relations between households, the corporate sector and the state sector intermediated by the banking sector reveal a severe retreat of banks from the corporate sector in favour of maintenance of government and central bank operations.
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