Difference Between Merchant Banking & Investment Banking

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Banks have evolved over time.
Banks have evolved over time. (Image: bank image by Pefkos from Fotolia.com)

Historically, banks loaned out money and kept it safe--no more and no less. Merchant banks and investment banks represent how certain banks have evolved from distant service providers to involved partners.

Merchant Banking

Merchant banks invest their own capital into corporate clients. A merchant bank will assess the value of a company and invest its money into it, sometimes taking a very large ownership interest in the company. Merchant banks specialize in international finance. Multinational corporations use this expertise to facilitate their international transactions.

Merchant banks invest their own money into their clients.
Merchant banks invest their own money into their clients. (Image: penny into antique piggy bank image by Joyce Wilkes from Fotolia.com)

Investment Banking

Investment banks raise outside capital for corporate clients. They handle initial public offerings, trade securities and facilitate mergers and acquisitions. They also perform research to advise clients on financial matters prior to their making investment and capitalization decisions.

Investment banks find various sources of capital for their clients.
Investment banks find various sources of capital for their clients. (Image: investing money image by dinostock from Fotolia.com)

Commonalities

Neither merchant nor investment banks serve the general public. Instead, both serve publicly and privately held corporations. Both merchant and investment banks perform underwriting functions for their corporate clients.

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