Rather, the defining feature may be that, whether banks invest in information-intensive loans or relatively transparent securities, they invest in fixed-income assets that have some degree of price volatility and illiquidity and so offer a higher return than very liquid and safe Treasury securities.
In this sense, small business loans and CMOs are on one side of the fence, and Treasury securities are on the other. Before proceeding, I should note a natural first reaction to these observations. You might say, “Of course banks prefer holding riskier securities to riskless ones, even if they create no monitoring value in either case.