As Chapman (2006) notes the origin of merchant bank can be traced back to the seventeenth and eighteenth century where merchants carried their trading activities across national boundaries. According to Chapman,Amsterdamwas the centre of international finances and the main carriers of commerce internationally were the Dutch people. Dutch merchants who were conducting these commercial activities acquired a lot of skills in this trading. Later the British merchants arose and they started competing with the Dutch merchants. As the competition between the two groups continued to increase, those who lost in the competition started shifting the capital they had accumulated to financial dealings. As the competition intensified Dutch merchants became the experts of the new developments and techniques in financial dealings. They thus became to be known as professions of merchant banking in the beginning of the nineteenth century.

According to Sharma (2003) the rapid developments in financial sector has heighten the demand of intermediaries in this sector which has created opportunities for development of many financial services. This development has expanded business scope as well as the spread and volume of the banking services resulting to growth in the whole financial sector. Thus this sector has become a key sector in the economy. Sharma argues that this rapid change in the financial industry has led to emergency of a market that is complex and highly competitive. Therefore in order to thrive in such highly changing competitive market, the necessity of intermediary financial institutions such as merchant banks is seen. These intermediary institutions provide the required services more efficiently and effectively in the financial sector. With this transformation in the financial industry, merchant banks are playing a significant role of intermediary in this market. Merchant banks provide specialised services to their client in the corporate business. They provide finances to the companies where they play the role of sponsoring securities issued in the stock market. Merchant banks are also playing a role of innovation in the financial services. These banks have come up with new services such as mergers and amalgamation, acquisition and many other financial services. Thus we can say that merchant banks have risen to play a critical role of linking investors and companies in the stock market.

Eccles and Crane (1988) appreciate the increased importance of investment bank in US as these banks continue to play a key role in the economy. The volumes of bonds that are issued in the market continue to increase as well as the issue of domestic equity.  Thus the necessity of these banks continues to increase as the financial sector continues to expand. Investment banks help corporations, individuals and government to raise investment capital. These banks act as the agent of the clients when it comes to the issuing of securities. They also provide various services to the corporations such as derivative trading, market marking, foreign exchange, instruments of fixed income, and equity securities among other financial services. They also provide assistance to those corporations that are involved in acquisition and mergers. These banks are different from other commercial banks in that they take no deposits. Investment banks deal with two major areas; they exchange securities for other securities or for cash and promote investment through public investment. The investment banks serve both the investors who are planning to buy the securities as well as the companies that are issuing the securities for sale in the market. Investment banks advices corporations on how and when to place their securities in the capital market and also advices the investors when they want to buy securities.

As Edward and Fischer (1996) point out banks play a crucial role in the national plan for investment and as these two scholars put it, national investment can be said to be based on the banks. Investment banks can be referred to as universal bank because of many financial services (both in investment and commercial) they provide to their individual and corporate clients. Both merchant banks and investment banks have continued to transform the financial sector as they continue to increase the scope of the services they offer to their clients. The difference between the two types of bank is becoming thin day after the other as the two banks continue to offer almost similar services to their clients in the financial market. These two types of bank have one common aim of helping their clients to raise capital for investments. They are acting as the intermediaries of the corporations that are issuing their securities in the market and the investors who want to buy these securities. They are committed to assist their clients with all the information and advice they need when doing their investments. Another similarity comes as the two banks expand their scope to offer non financial services such as assistance to those corporations undertaking acquisition and mergers. In conclusion the two types of banks are offering similar services though the scope of investment bank is wider compared to merchant banks.


Chapman, S.(2006) The Rise of Merchant Banking. First edition, George Allen & Unwin publishers,London. Available at,

Eccles, G. & Crane, D. (1988) Doing deals: investment banks at work. First edition, Harvard business school press,USA. Available at,


Edwards, J. & Fischer, K (1994) Banks, finance and investment in Germany. First edition, Cambridgeuniversity press, USA. Available at, .

Sharma, A.(2003) marketing effectiveness in merchant banking services – a comparative study of public and private sector. Journal of Services Research Vol. 2, Iss. 2; pg. 123, 15 pgs


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