The transition period towards a market economy in the Czech Republic was accompanied by unfavourable effects on the banking system. Many small banks fell into trouble, and problems accumulated in the largest banks. The central bank was first involved in the resolution of banking crises as a lender of last resort, though its role was gradually taken over by the state. The last economic and financial crisis had only limited impact. Together with the changing banking system, the monetary policy of the central bank also evolved from the monetarist transmission mechanism to inflation targeting. Three main areas are theoretically and practically analysed. The Central bank's role in rescuing the banks, the link between monetary policy and the profit or loss of the Czech National Bank, and the impact of a specific form of quantitative easing on the Czech banking system.