LeoGlossary: Merchant Bank

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A bank that historically deals in commercial loans and investment. This is as compared to retail banking with deals with individuals.

Historical Context

Merchant banks were the first modern banks and evolved from medieval merchants who traded in commodities, particularly cloth merchants. The purpose was to facilitate and/or finance production and trade of commodities, hence the name "merchant". Few banks today restrict their activities to such a narrow scope.

Contemporary Context

Today, merchant banks are known in the US as investment banks. The UK uses the phrase "accepting and issuing houses".

Some of the services:

  • issue management
  • portfolio management
  • credit syndication
  • acceptance credit
  • counsel on mergers and acquisitions
  • insurance

According to the US Federal Deposit Insurance Corporation (FDIC), "the term merchant banking is generally understood to mean negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies."

This means both investment and commercial banks can engage in this services.


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