The links between institutions and economic evolution, especially between financial institutions and industrial innovation, are poorly understood. Having Schumpeter´s theory of economic evolution as starting point, this study gives an outline of an institutional-evolutionary theory of institutional change, innovation, and financial systems, based on learning-by-financing within bank-industry networks.

Financial institutions are added to the Grossman-Helpman endogenous growth model with quality ladders, enlarging and enriching the model with institutional differences. The evolution of bank-industry networks is analyzed as an such evolutionary Stag Hunt game to show the crucial role of institutional endowments, such as network commitment, to the process of institutional change moving the economy between growth regimes, combining theoretical and historical analysis. The viability of bank-industry networks is analyzed through appreciative theorizing.

Learning-by-financing within bank-industry networks may increase innovativeness through a better resource allocationat lower information costs. Bank-industry networks may evolve spontaneously when network commitment is a sufficient institutional endowment, otherwise collective action is required. Bank-industry networks around universal banks are evolutionary viable in a securitized economy, if they keep the value of information higher than the value of diversification.