Alexander Gerschenkron’s theory of economic backwardness highlights how late-industrializing economies rely on institutional substitutes to overcome structural constraints. This paper examines the role of banks as key institutional substitutes facilitating industrialization, capital mobilization, and structural transformation. Drawing on historical experiences of Germany, Russia, and Japan, it argues that banks in backward economies function beyond financial intermediation by coordinating long-term investment and reducing market failures. The study revisits Gerschenkron’s framework in a contemporary context, showing how developmental banking models continue to support economic catch-up. The paper concludes that strong banking institutions remain central to enabling economies to exit backwardness and achieve sustained growth.