In this paper, emphasis is given on the role of the banking sector in the development of the Croatian economy. The first part overviews existing findings regarding the development of the world’s banking system and in the Republic of Croatia, bank characteristics and irresponsible business conducts that led to financial and consequently economic crises. Further in text, the Croatian economy is thoroughly described through its development phases starting from its independence until present day. Specific macroeconomic and banking indicators are presented as well as their effect on the economy. The aim of this paper was to determine the role of the banking sector in the development of the Croatian economy, its causality and in which manner it affects the economy. Moreover, future perspectives of the banking system are also presented, areas which would need improvement in order to gain a more effective development. In the analysis of existing literature based on the relation between the financial system and economic growth as well as selected macroeconomic and banking system indicators, a positive correlation is determined regarding the role of the financial system on the economic development of Croatia as a developing country. However, due to the complexity of the subject matter, further research is needed for a better understanding of the issues in question.