Early this year the profitability measured by return on equity in Croatian banks fell to the lowest level in this decade. Exceptionally high regulatory cost, followed by growth of interest rates on the global market has in only three years transformed the Croatian banking system into one of the least attractive for investments in Europe. Reacting to the new situation, bankers have managed to make savings and thus to lower the cost ratios to competitive levels on the international scale. Expected rate of return on equity invested in banking may be changed fast by an intervention into the banking regulation system if low expected profit starts producing adverse effects on overall financial stability.