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What are the Functions of a Merchant Banker?
Merchant banks are the most important division of financial assistance to financial institutions in developed nations. They help in improving and running the capital markets smoothly. Merchant banks, also known as investment banks, offer a variety of support and consultation services to corporate firms.
In Europe, merchant banks are allowed to engage in commercial banking. This is, however, not the case in the US. In the US, merchant banks are not allowed to carry on with commercial banking. Merchant banks help develop and nurture capital markets in developing countries.
With deregulation and liberalization, merchant banks have now become an important institution of finance. Merchant banks are neither merchants nor banks. In fact, when the merchants started financing foreign trade, they came to be known as merchant banks, as they were the first to provide such services in the world.
Merchant banks started governments of developing nations, assisting them in raising long-term funds, via floatation of bonds on the London Stock Exchange (LSE), for syndicating the short-term financing of domestic businesses, underwriting for securities, and managing other security issues.
Merchant banks also started to act like debenture trustees, providing consultation in investment and portfolio management, mergers and takeovers, corporate restructuring, management of liquidity, and other financial services as the business of merchant baking proliferated.
Functions of Merchant Bankers
Merchant bankers help their corporate clients in a number of ways.
Merchant bankers offer the corporate firms save valuable time by doing the banking services on behalf of their clients. These services may include legal and procedural management functions that the corporate firms would like to outsource to the merchant bankers as the latter is more expert in doing the duties.
Merchant bankers help clients in the domains of investment. Financing and corporate restructuring. As merchant banks are well aware of different markets, corporate firms can access their knowledge to finance projects, take over a company or run the company in a different geography with the help obtained from merchant bankers.
Merchant bankers help in creating and maintaining an environment of professional competence by cultivating investment attitude and desire. This is very important for business firms because they will lose valuable time and money in creating a competitive culture in maybe new locations as they may not be aware of the culture.
It is usually observed that merchant banking activities are regulated by the government. As merchant bankers work with large firms and deal in large sums of funds, they require to meet certain conditions prescribed by the authorities of capital markets in different countries. In India, merchant banking institutions need to comply with the rules and regulations offered by the Securities and Exchange Board of India (SEBI).
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