Institutions that carry out a variety of financial services,including the acceptance of bills of exchange, the issue and placing of loans and securities, portfolio and unit trust management and some banking services. Several houses, often throught subsidiaries, also provide risk capital for small firms, deal in gold bullions, insurance banking and hire purchase and are active in the market for Eurodollars.
Historically, the merchant banks were merchants dealing in overseas trade who used their knowledge of traders to accept bills of exchange and who developed other banking services conntected with foreing trade, e.g. dealing in gold and foreign currency and assisting foreign borrowers to raise money in London. Particularly in the 1960s their most prominent function was that of advising firms on mergers and take-overs and other financial matters, and many merchant banks are well known, e.g. Rothschild, Barings, Hambros, Lazards and Schroders.
Merchant banks are also referred to as issuing houses, accepting houses or investment trusts, in excersising particular functions. The merchant banks’ deposits amount to only five per cent of those of the banking system and they are in fact realtively small institutions which pride themselves on their personal, flexible management.
Reference: The Penguin Business Dictionary, 3rd edt.