What is a Merchant Bank?

John Sunshine

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. It is sometimes said to be a wholesale bank, or in the business of wholesale banking because these banks tend to deal primarily with other banks of the same kind, as well as large financial institutions.

A merchant bank deals with the commercial banking needs of international finance, long-term company loans, and stock underwriting.
A merchant bank deals with the commercial banking needs of international finance, long-term company loans, and stock underwriting.

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 this type of bank to implement and underwrite the process. The bank determines the number of stocks to be issued, the price at which the stock will be issued, and the timing of the release. It then files all the paperwork required with the various market authorities, and it 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 banks may work together, with one being the lead underwriter.

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

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Many of the largest banks have both a retail and a merchant 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 this type of bank, many people are unlikely ever to visit or deal directly with one. They usually operate behind the scenes and away from the spotlight.

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Discussion Comments

anon140986

What is the objective of Merchant Banking? What is history of merchant banking, functions of merchant banking, activities of merchant banking? Distinguish between merchant banking and commercial bank and investment banking. --Manish M.

anon140985

What are the career prospects in merchant banking?

anon83934

What are the main objectives of a merchant bank?

sanjan

what are the types of merchant banker?

anon79307

What is the main function of merchant banking?

anon78034

What is the objective of Merchant Banking? What is history of merchant banking, functions of merchant banking, activities of merchant banking? Distinguish between merchant banking and commercial bank and investment banking. what is the role of a merchant bank to the economy? In brief detail.

anon76732

explain the activities of merchant bank and the financial flow of the merchant bank, in details.

anon76572

explain the fee based activities of merchant banks?

anon72190

What are the career prospects in merchant banking?

anon70385

what is the role of a merchant bank to the economy?

anon64522

What is the objective of Merchant Banking? What is history of merchant banking, functions of merchant banking, activities of merchant banking? Distinguish between merchant banking and commercial bank and investment banking. In brief detail

anon44604

How do merchant banks issue IPO? with detailed prospects.

anon43844

What is the role of merchant bank in QIP?-- sibani

anon41134

what are the different facililties in merchant banking?

anon38182

What is the objective of Merchant Banking? What is history of merchant banking, functions of merchant banking, activities of merchant banking? Distinguish between merchant banking and commercial bank and investment banking. In brief detail.

Ashutosh

What is the objective of Merchant Banking?

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