which equates the marginal product of physical capital and the expected capital gain to the required rate of return of investors.
The banking sector transforms deposits into loans , respecting a regulatory constraint which makes it costly for the bank if deposits exceed a fraction of total loans. The corporate banking sector issues shares at price , and the number of outstanding shares is denoted by . Shares are held by private equity owners and by the government. Banks pay dividends to share holders at rate . Dividends are equal to the cash flow of the corporate sector plus revenues from issuing new shares. Concerning losses we make a distinction between expected losses which actually materialise () and panic driven loss expectations () which do not materialise
,
, respecting a regulatory constraint which makes it costly for the bank 
of total loans. The corporate banking 
, and the number of outstanding 
. Shares are held by private equity owners and by the government. Banks pay dividends 
. Dividends are equal to the cash flow of the corporate sector plus revenues from issuing new shares. Concerning losses we make a distinction between expected losses which actually materialise (
) and panic driven loss expectations (
) which do not materialise