Difference Between Commercial Bank and Merchant Bank

What is a commercial bank?

A commercial bank is a sort of financial institution that receives deposits, provides checking account services, makes loans, and offers basic monetary products such as certificates of deposit and savings accounts.

They may receive special treatment from funding banks and insurance companies, although the lines among those types of economic institutions are frequently blurred. They generate revenue by making loans and charging interest on the money owed.

They also make money from service fees, including yearly maintenance fees for checking accounts.

They offer credit cards, loans, and savings accounts. They are also responsible for controlling the money supply via the Federal Reserve System.

The primary function is to provide financial services to consumers and corporations. Loans, credit cards, savings accounts, and mortgages are examples of these services.

What is a merchant bank?

A merchant bank is a sort of bank that loans funds to companies while also taking equity holdings in them. Typically, they are financial institutions with commercial banking licenses.

This enables them to provide their customers with both banking and investment services. They are frequently involved in merger and acquisition financing.

It also offers additional corporate financial services. It makes loans to companies and invests in other firms to provide financing.

The primary job is to offer money to companies so that they can grow and expand.

They also assist businesses in making investment decisions, such as determining which stocks to buy or sell. Furthermore, merchant banks advise on mergers and acquisitions.

Difference Between Commercial Bank and Merchant Bank

Commercial and merchant banks are both organizations that provide services to both corporations and individuals. The basic difference between the two is that commercial banks provide a broader range of services.

Savings and deposit accounts, loans, and credit cards are all part of it. Merchant banks provide investment banking services such as loan underwriting and issuance.

Comparison Table Between Commercial Bank and Merchant Bank

Parameters of ComparisonCommercial BankMerchant Bank
DefinitionA commercial bank is a type of financial institution that provides banking services to customers, such as savings and checking accounts, mortgages, and debit cards.A merchant bank is a financial institution that lends capital to businesses in the form of loans and stock funds.
AccessibilityCommercial banking is the provision of services to businesses. Taking deposits, making loans, and offering other financial services are all examples of this.Merchant banks often offer more flexible terms than commercial banks and are more willing to work with high-risk businesses.
EarningsThe main sources of revenue for commercial banks are typically generated through these means.Merchant banks are a type of financial institution that provides capital to companies in the form of loans. These loans typically have high-interest rates.
Economic effectsThe money supply totals the amount of money in circulation in an economy. It includes both physical currency and money in bank accounts.  They play an important role in the economy by providing credit, foreign exchange, and trade financing.   Merchant banks also help businesses raise capital by underwriting and issuing securities.
Risk exposureCommercial banks are  exposed to interest rate risk, credit risk, liquidity risk, and market risk.Merchant banks are exposed to credit risk, interest rate risk, and market risk.

References

  1. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/fdicbnkrv14&section=6
  2. https://link.springer.com/article/10.1023/A:1007971801810