1) Why do banks and other institutions choose to devote a significant

portion of their assets to investment securities?

Nonbank financial service providers such as insurance companies,
pension funds, and mutual funds often devote an even bigger portion of
their assets to investment securities.
Furthermore, Investments perform many different roles that act as
a necessary complement to the advantages loans provide. Investments
generally have less credit risk than loans, allow the bank or thrift
institution to diversify into different localities than most of its loans
permit, provide additional liquid reserves in case more cash is needed,
provide collateral as called for by law and regulation to back government
deposits, help to stabilize bank income over the business cycle and aid
banks in reducing their exposure to taxes.