Merchant Banking

form of banking where the bank arranges credit financing, but does not hold the loans in its investment portfolio to maturity. A merchant bank invests its own capital in leveraged buyouts, corporate acquisitions, and other structured finance transactions. Merchant banking is a fee based business, where the bank assumes market risk but no long-term credit risk. A common form of banking in Europe, merchant banking is gaining acceptance in the United States, as more banks originate commercial loans and then sell them to investors rather than hold the loans as portfolio investments. A banque d'affaire is a French merchant bank, which has more powers than its British counterpart. The gramm-leach-bliley act of 1999 allows financial holding companies, a type of bank holding company created by the act, to engage in merchant banking activities.