A merchant bank deals with the commercial banking needs of international finance, long-term company loans, and stock underwriting. This type of bank does not have retail offices where a customer can go and open a savings or checking account. A merchant bank is sometimes said to be a wholesale bank, or in the business of wholesale banking. This is because merchant banks tend to deal primarily with other merchant banks and other large financial institutions.

The most familiar role of the merchant bank is stock underwriting. A large company that wishes to raise money from investors through the stock market can hire a merchant bank to implement and underwrite the process. The merchant bank determines the number of stocks to be issued, the price at which the stock will be issued, and the timing of the release of this new stock. The bank then files all the paperwork required with the various market authorities, and is also frequently responsible for marketing the new stock, though this may be a joint effort with the company and managed by the merchant bank. For very large stock offerings, several merchant banks may work together, with one being the lead underwriter.

By limiting their scope to the needs of large companies, merchant banks can focus their knowledge and be of specific use to such clients. Some merchant banks specialize in a single area, such as underwriting or international finance.

Many of the largest banks have both a retail division and a merchant bank division. The divisions are generally very separate entities, as there is little similarity between retail banking and what goes on in a merchant bank. Although the lives of most people are probably affected every day in some way by decisions made in a merchant bank, many people are unlikely ever to visit or deal directly with one. Merchant banks usually operate behind the scenes and away from the spotlight.