Given below is an excerpt from a conversation. Critique it.

a. Butterworth: I’ll let that pass because I want to address your question, Mike. You know over 70% of business loans are secured, and collateral has some really beneficial incentive effects from the bank’s standpoint. Moreover, it permits the bank to engage in creative loan-contract design that helps to resolve some thorny informational problems. It also leads to improved bank monitoring of borrowers, which is a key function associated with both secured and unsecured lending. To make a really long story short, I think that business lending is a key component of banks’ activities. If regulation discourages this, then I think we’ll have seriously weakened the financial intermediation process.

b. Moderator: If the role of banks in business lending were to diminish, what sort of losses to society do you foresee, Beth?

c. Butterworth: That’s my favorite topic, Mike, so we could be here all night if I get going. But just briefly, I think that in the process of originating these loans, designing loan contracts, structuring covenants, including the crafting of collateral requirements, monitoring, and the restructuring of loans for borrowers in financial distress, banks have developed considerable expertise. It would be a shame if the financial system evolved in such a way that these skills would need to be relearned by others.