Second, we have that dµi/dzi < 0, which means that banks have a bigger share in assets that have less long-run solvency risk, all else being equal. Taken together, these two results suggest that banks have a comparative advantage in holding assets that can experience significant temporary price dislocations but, at the same time, have only modest fundamental risk.
Agency MBS might be a leading example of such an asset, since they are insured against default risk but are less liquid than Treasury securities and, for a given duration, have more price volatility, as the MBS-Treasury spread varies significantly.