The study investigates the impact of banking-system development on economic growth, with empirical analysis for Macedonia. The banking system can affect the economic growth through the accomplishment of its basic functions: Generating information for the potential investment and for the capital allocation; Mobilization of savings, which includes bridging over transaction and information costs; Company control; Risk diversification, intertemporal risk distribution and reducing the liquidity risk; and Specialization and concentration of the banking activity. The main conclusion is that the relationship between bank development and economic growth for Macedonia is positive and highly significant. The research finds that the private credit, liquid liabilities, total bank assets and net-interest margins are positive and highly significant for economic growth.