From the early 20th century, the domestic financial sector in the Gulf states was kept relatively underdeveloped by British imperial interests. In the 1940s, for example, some Gulf states were still using the Indian rupee as their primary currencies and the formal banking system was overwhelmingly dominated by British colonial banks. However, by the time the British formally withdrew from Kuwait in 1961 and the other states in 1971, local merchants and rulers had already established domestic banks that dramatically captured the market share once enjoyed by colonial banks. In contrast to the experiences of most British colonies, a domestic financial sector flourished in the Gulf states under the auspices of British rule and in competition with British capital. As such, my paper engages with historical sociologies of development to ask: what were the local, regional, and global processes that explain the success of financial development in the Gulf states? To explain the success of financial development in the Gulf states, my paper relies on English and Arabic-language primary sources from two archives: the Arabian Gulf Digitized Archive and the HSBC bank archive. The former is an online collaboration between the national archives of the UK and UAE, and the latter hosts the records of the British Bank of the Middle East (BBME) - the biggest British colonial bank in the Gulf. My paper draws upon important documents such as bank reports, letters of correspondence, and dossiers to identify how different institutions contributed to, or resisted the emergence of a domestic financial sector. My paper argues that local merchant mobilization, regionally-inspired developmentalist policies, and the demise of the sterling area prompted the establishment of a domestic financial sector. Moreover, it argues that local merchants and ruling classes exploited conflicts between private British capital and British colonial authorities so that the latter prioritized the interests of domestic banks over British colonial banks. Historical sociology has a robust theoretical tradition of explaining the success or failure of industrial development in the global South, particularly by paying attention to domestic classes, coalitions, and institutions. This paper intervenes in sociological debates on development in colonial and post-colonial contexts by examining financial classes and institutions, rather than industrial ones. Moreover, scholars have studied the development of the Gulf states largely through oil extraction. Instead, my research contributes to emerging scholarship on state and class formation in the Middle East from the perspective of financial institutions.