Key Equations:
\(R = (1 + r)B - C\)
\(C + R \leq B (1 + r)\)
R represents the gross returns to the company for the project; B is amount borrowed, and C is collateral. 
\(\theta\) is an index of the risk of projects, increasing means more risk. Implications: Bank profits are nonmonotonic in interest rates and profits can actually decrease with increased interest rates (due to risk increasing). 
Net return to the borrower:
\(\pi (R, \hat r) = max [R - (1 + \hat r)B - C]\)
Net return to the bank:
\(\rho (R, \hat r) = min[R + C, B(1 + \hat r)]\)