In this study overall financial development and the performance of commercial banks in Georgia during 1991-2000 is analyzed. Georgian banking system emerged from a scratch after the country gained its independence in 1991. Initial reform path turned out to be very arduous, full of failures and disappointments. After complete chaos of 1991-1994 the banking sector recovered quickly owing to extreme measures taken by the authorities. We discuss in detail the policies pursued by the National Bank of Georgia, the outcomes of these policies and contrast general performance of Georgian banks with banks in other transitional economies and developed countries. To measure performance of individual commercial banks in 2000, Data Envelopment Analysis (DEA) was employed. DEA has been extensively used to study commercial bank efficiency over the last two decades. Major advantages of DEA are its applicability to small samples, employment of less information than required by alternative parametric approaches (e.g. information on prices and the knowledge of functional form for the production relationship is not necessary) and the ability to perform analysis with multiple inputs and outputs. We found that inefficiency in the Georgian banking sector was equally due to pure technical and scale inefficiencies; large banks were oversized because of excessive branching contributing to their scale inefficiency; and there was a significant positive relationship between efficiency and profitability. / Graduation date: 2002