Although the transition countries in this study?Central and East Europe and the Baltics (CEEB), South East European (SEE), and Commonwealth of Independent States (CIS)? implemented different policies and reforms at different stages, the characteristics of their financial sector two decades after the break-up of the Soviet Union are basically similar: strong domination by commercial banks which are increasingly foreign-owned lending mainly to the government, a highly illiquid and volatile stock market, inadequate domestic financing, and long-term financing mainly from foreign direct investment. The CEEB and SEE countries achieved further progress than the CIS countries. The average EBRD index for bank reforms indicates that the CEEB countries made further progress than the SEE and CIS countries and improved in all groups (Figure 1). The European Bank for Reconstruction and Development (EBRD) banking sector index ranges from little reform with an index of 1 to comparable western standards with an index of 4+. Although not at western European standards, the CEEB banks today are operating at levels that are more efficient and effective than a decade ago with improved regulation and supervision processes in place. A score of 3 indicates that the CEEB countries established bankruptcy and insolvency procedures for failed banks, subjected the banks to hard budget constraints, and eliminated the easy access to credit from the central bank. The CEEB countries progressed much further in banking reforms (EBRD index between 2.7 and 4.0) than the SEE (EBRD index between 1.0 and 4.0) and CIS (EBRD index between 1.0 and 3.0) countries, particularly in global integration and in banking and enterprise reforms. The EBRD index of banking sector reform equals 4.0 for the Czech Republic in years 2001 ? 2008 (since 2009 the Czech Rep. has not been classified as a transitional country by EBRD), Estonia in 2004 ? 2010, Hungary 1998 ? 2009 (in 2010 the index is 3.7), Latvia in 2007 ? 2008 (in 2009 and 2010 the index is 3.7), and Croatia in years 2004 ? 2010 (Appendix 1). CIS countries rarely obtain a score equal to 3.0 ? except for Moldova 2007-2008, Kazakhstan 2003? 2008 and Ukraine 2006 ? 2010.\r\nIt is crucial that financial development and reforms are sustained to the level of western standards for the transition countries to better withstand external shocks, especially during the recent Euro zone crisis of 2011-2012.\r\nForeign banks are attracted to potentially profitable markets. The more a country transitions into an economically stable and growing market, the more foreign banks are attracted to the country; and in turn, the greater the foreign bank participation in the transition country, the greater the contribution to that country’s development. By developing these characteristic factors, transition countries hope to attract foreign bank entry and foreign direct investment to accelerate economic growth. Therefore, how transition countries evolve and develop their financial systems, implement reform and economic policies to improve per capita income, and lower restrictions to foreign entry are characteristic factors that make their markets attractive to foreign bank entry.