Such issue that is freed from any controversy is intended to the banking system.
One of the oldest professions in the world is money lending.
Banks that do this job definitely fulfill a public service.
Are they nonetheless a source of added value ?
Let us make the comparison between a bank that has granted two loans worth 5 each with another bank that has granted 50 loans worth 0.2 each.
Hasn’t the second been wiser than the first one by diversifying its portfolio between 50 loans?
The answer seems “yes” but not enough to suggest additional value. In the end, each credit institution keeps on with a portfolio of the same value of 10.
Unless one pays attention to the liability side of such institutions and to the way their portfolios have been funded.
If the investor has come to the conclusion that a diversified portfolio bears less risk than a low granularity portolio, he may wish to grant more favorable terms to the second financial institution than to the first one.
Isn’t a matter to assess the ultimate value of banks as the result of their ability not to impair the wealth of their investors?
Dominique F. Pasquier