By early in the nineteenth century, wealth sufficient to fund industrialization existed in many parts of the world; the primary challenge was mobilizing those funds and channeling them to the most productive uses. This process required collection of idle funds from investors and then distributing them to entrepreneurs to invest in industrial undertakings. The continuous repetition of this process, in large part through the financial system, greatly expanded and redistributed the supply of financial capital. This “virtuous” cycle increased the share of the economy’s resources directed to industrial development and drove economic growth.

As the drivers of capital mobilization, financial institutions play a key role in theories of economic growth and industrial development. But questions persist about how banks play their part in matching savers and entrepreneurs and whether particular types of financial systems achieve greater success than others. At the same time, much remains to be learned about how financial systems form and why they take the various shapes they do. This chapter begins the process of addressing these questions, following the development of five important corporate financial systems in their early development: the United Kingdom, Germany, Italy, Japan, and the United States. While other types of institutions naturally contributed to the financing of industrialization by funneling capital toward industrial enterprise, the analysis here focuses on the components of financial systems that directly financed industry – commercial banks and securities markets. Subsequent chapters consider related questions of the organization of commercial banking industries, the scope of services provided within individual banks, the development of relationship banking practices – active involvement in corporate governance of firms and equity stakes in industrial companies – and their consequences for industrial firms and economic growth.