This paper studies competition in capital markets subject to moral hazard when financial contracts cannot prevent side trades. To restrict entrepreneurs’ ability to trade with competitors, investors can include covenants in their contracts. Without covenants, the equilibrium outcome is always efficient, and unique when the moral hazard problem is severe. Then, lenders earn monopoly profits. With covenants, market equilibria are indeterminate and Pareto-ranked: every feasible allocation can be supported at equilibrium. We next consider the impact of two institutional mechanisms (information sharing systems and loan subsidies). Both restore efficiency, but only loan subsidies sustain the competitive equilibrium outcome. Joint with: Andrea Attar, Arnold Chassagnon, and Jean Paul Décamps.