Developments in the financial system explain a great deal about an economy’s evolution. Indeed, Thailand’s remarkable growth in the late 1980s and early 1990s would not have been possible absent the rapid development of the financial system at the time. Ironically, inherent weaknesses in the financial sector contributed much to the country’s most severe economic crisis since the Second World War. This section provides an assessment of the recent developments in Thailand’s financial system, and in particular the state of the banking sector, in order to set the stage for the analysis of Thailand’s recent economic transition in Section 4.