A merchant bank is a financial institution which unlike the commercial banks does not allow deposits, but offers services with high risk and speculation. Strictly speaking, a merchant bank is not a depository financial institution or a credit institution, but a consulting firm whose income is derived from the fees it charges its customers. It therefore has no conflict of interest with the activities of credit or funding – it is independent.
According to some interpretations merchant banks are banks offering long-term capital, and specialize in corporate finance. By abuse of language, banking takes the same meaning as investment banking given that conventional commercial banks are also able to offer banking services.
Credit institutions generally have universal accreditation (CECEI), which eliminates the short/medium term distinction. Providers of investment services overlap in practice the ancient statutes of stockbrokers, commission plans (goods) or Houses of Securities and not interfered with their own funds.
Investment banks have a prevailing role of investment in the medium or long term, often taking venture capital. Private banks reign when collecting money from highly selected customers.
In many countries the term merchant banks includes all investment banks. While in others the merchant banks are not strictly separated from investment banks in a system of integrated banks.
Their fields of operation include: consulting for entrepreneurs, companies and governments; management of acquisitions, mergers and restructurings of companies. As well as investments in commodities, derivatives, risk action and management of investment and pension funds.
Merchant banks were created in the Middle Ages by grain merchants. The transition from trade financing to the current funding systems have been quite short. Consequently, there was the need to erect the receiver, called the banker for the regulation of the sale of wheat that were made through ticket or notes written by people that buy and sell grain.
So the banks of dealers in major markets became the places at which to deposit the money ahead of tickets (receipts, handwritten notes, bills of exchange and promissory notes). These funds were deposited and held for payment of charges arising from contracts for the sale of wheat.
The word bankruptcy derived from broken, is indeed what happened when a deposit takers lost deposits of their customers or dealers. But those involved in deposit taking quickly grew accustomed to rewarding depositors through rebates of interest compared to what they could earn by using their own money in trades. Concisely, they sold them an interest in a given deal, overcoming the risk of default.