What is the difference between Merchant bank and commercial bank?

Answer 1

The world of banking and finance is one of many intricacies. Many types of financial institutions exist, including commercial banking and merchant banking. The difference between commercial banking and merchant banking lies mainly in the services they provide, and to whom they are provided. Commercial banking is generally accessible to anyone for basic banking needs, whereas merchant banks serve mainly large companies and very wealthy individuals.

Commercial banks are what people typically refer to as "banks." A commercial bank can provide loans to individuals and small businesses. It raises funds by collecting deposits from these same groups of people, as well as from interest charged on loans. It also purchases bonds from governments and corporate entities.

The banks described above are the most common definition of commercial banks. Commercial banking is also sometimes defined as the provision of banking services such as checking and loans to large businesses, as distinguished from individual citizens. In this case, banking provided to individuals is referred to as retail banking to differentiate it from the second definition of commercial banking.

Commercial banking and merchant banking both involve the provision of financial services and advice. Merchant banking, however, often focuses on investing a depositor's assets in a finance portfolio and managing these investments. Merchant banks are commonly called investment banks in the United States. Apart from investing and managing the assets of wealthy clients, merchant banks also offer counsel and advice to large corporations. This advice is particularly useful when a corporation is considering getting involved in a merger with, or acquisition of, another corporation.

Both commercial banking and merchant banking have roots that go back hundreds of years, if not more. Merchant banks were actually the original banks, and were invented in the Middle Ages by Italian grain merchants. These merchants, as well as Jewish traders fleeing persecution in Spain, used merchant banking to finance long trading journeys as well as the production of grain.

The use of commercial banks by the average citizen is a relatively new phenomenon, historically speaking, but moneylenders have engaged in basic banking practices since the time of ancient Roman Empire. Primitive banking, though, mainly consisted of changing foreign currency to that of the Empire, rather than investment as we see today. Today's commercial banks are so common that more people work in the commercial banking sector than in any other part of the financial services industry.