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Difference between Commercial Bank and Merchant Bank

Banks are important to the world economy. Due to their similarity in providing services including lending, deposits, and investment, commercial and merchant banks are frequently confused. Regarding the two, what is the difference between a commercial bank and a Merchant Bank? The exact differences between commercial and merchant banks are explained in this article. 

What is a Commercial Bank?

One kind of financial institution that offers banking services to both individuals and corporations is a commercial bank. A wide range of services are provided by commercial banks, such as credit cards, loans, investment products, and checking and saving accounts. In addition, they offer standard banking services including cheque processing and deposit processing. The government controls commercial banks and subject them to strict rules and regulations. They must keep a specific level of capital, which they use to fund their own operations and lend money to clients. The Federal Reserve the US Central Bank, has regulations that commercial banks have to operate by.

What is a Merchant Bank?

A Merchant Bank is a particular kind of bank that loans money to companies and invests in their equity. Securities trading, issuing, and underwriting are other activities that merchant banks participate in. They usually invest in long-term projects and collaborate with big businesses. Providing companies with investment and commercial banking services is the main duty of merchant banks.

Difference between Commercial Bank and Merchant Bank

  • The main business of the commercial bank is related to regular banking services, On the other hand, merchant banks excel in providing consultancy and advisory services to clients.
  • Commercial banks are less prone to risk, but merchant banks are highly exposed to risk.
  • The role of a commercial bank resembles a financier, On the contrary, merchant banks act as financial advisors.
  • Commercial banks are under the Banking Regulation Act, of 1949. Merchant banks allow the rules and regulations composed by SEBI.
  • Loan extended by commercial bank is debt-related, Unlike equity-related loans granted by merchant banks.
  • Commercial bank Services are provided in general banking, On the other hand, Merchant bank services in banking consultancy.
  • Commercial banks engage in the general banking business such as Schreiber lassen, on the other hand, merchant banks are more of consultancy service providers.
  • Commercial banks are established to fulfill the banking needs of the general public Google agentur. Merchant banks are established to accomplish the financial needs of corporate firms.
  • A commercial bank may have a low-interest rate on a loan, but a merchant bank has a high interest rate on a loan.
  • A commercial bank has limited investment activities. In comparison, a merchant bank engages in far more comprehensive investment activity.
  • Commercial bank's risk exposure is less in comparison with merchant banks.
  • A commercial bank is regulated by the central bank of the country it operates in, on the other hand, a Merchant bank is regulated by the Securities and Exchange Commission.
  • A commercial bank raises funding through customer deposits, but a merchant bank raises capital markets.
  • JPMorgan Chase, Bank of America, and Wells Fargo are examples of commercial banks, such as Goldman Sachs, and Morgan Stanley, and examples of merchant banks.
  • Commercial banking is accessible to anyone who needs basic banking services, but merchant bank's accessibility is limited to big companies and affluent individuals.
  • The interest that commercial banks earn from various loans is their main source of income. Other earnings include fees earned on services such as ATMs and checking accounts, But Merchant banking earns its primary income through advisory fees.
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