In this chapter I focus on the relationship between finance capital and the state—on both how the state directly and indirectly influences capital flows and how finance capital provides constraints for state action. Recent analyses of the capitalist state suggest that the state’s control over capital flows has become increasingly important in its effort to promote accumulation and to improve efficiency and productivity. The structure of financial markets, however, limits the state’s ability to control capital flows. The highly specialized nature of financial markets, the large number of financial institutions, and the division between finance and commerce make it difficult for the state to use capital markets to direct industrial change. Deregulation of financial institutions will promote a more centralized credit system and enhances the state’s ability to negotiate with finance capital over the direction and magnitude of capital flows. I examine the political and economic forces that contributed to financial deregulation and the consequences not only for state industrial policy, but also for the structure of the credit system. Although deregulation provides a more centralized credit system through which the state can direct technological and industrial change, it also increases the volatility of local capital markets and restricts the capacity of the state to implement industrial policies producing further economic growth. Thus, financial deregulation will contribute to structural problems in the economy.