This paper develops a dynamic partial equilibrium analysis of how financial policy affects capital accumulation when bank loans are rationed and subsidized. The underlying specification of intertemporal behavior is critical: loan policy often has qualitatively different effects on capital accumulation in overlapping-generations and infinite-horizon models. It is also shown that, in the infinite-horizon case, the results are extremely sensitive to the timing of private-sector expectations. Policies that promote (reduce) capital accumulation when unanticipated induce capital decumulation (accumulation) when anticipated. Copyright 1991 by The London School of Economics and Political Science.