Evolution of the financial system involves continual institutional changes for reform purposes. However, reform experiences differed considerably from one country to another. Why is it that some countries can effectively implement reforms to foster successful development while others fail to do so? This study takes a first step in answering this question. It aims to explain the variations of financial reform experience in terms of informal institutional influence and highlight the importance of governance in shaping the reform outcome. The thesis studies governance characteristics that influence Taiwan's banking evolu- tion and examines the development of both formal and informal institutions. It argues that development of Taiwan's banking sector has been path-dependent and significantly influenced by informal institutions, which held back its recent reform progress. The study comprises three parts: theoretical framework, quantitative statistical research and qualitative country study. It applies the analytical framework set out in the theoretical part and draws on empirical evidences from quantitative research to form the basis for an empirical investigation into the historical financial development and recent reform experience in Taiwan. At the conceptual level, the research adopts the New Institutional Economics (NIE) framework and argues that governance bears a decisive importance for an effective reform because it fosters trust in the institutions and facilitates the reform by encouraging cooperative behaviours among actors. It identifies that governance of financial service industry is perceived from institutional qualities of property rights protection, corruption prevention, and political stability. Using the case of Taiwan's banking sector, the research explores the sector has been shaped and conditioned by the institutional contexts in which it operates. It discovers that that the underdeveloped mechanism for creditors' rights protection, collusion between financial businesses owners and politicians, deadlocked political situation with China contribute to weak governance which amplified its 1990s banking crises. It is observed that government's behaviours did not transform with the reform to form new habits and thoughts under the influence of the institutional persistence, hence only had limited success in inducing policy enforcement. In terms of policy implications, the research encourages policy makers to study historical development and to build upon existing initiatives taking into account the path-dependent environment and informal institutional embeddedness of implemented projects.