Key Difference: Investment banks are financial institutions that assist individuals, corporations, and governments in raising financial capital by underwriting or acting as the client's agent in the issuance of securities. A merchant bank is a financial institution that provides capital to companies in the form of share ownership instead of loans.

For the general public, a bank is an entity that allows clients to borrow money, get interest via deposits and a place that keeps money safe. This is actually the definition of old banking, or rather, banking for the common public. There are more specialized banks that now cater the needs of companies and institutions. They also have become investors themselves. Investment Banks and Merchant Banks are two types of banks that offer these services.

Investment banks are financial institutions that assist individuals, corporations, and governments in raising financial capital by underwriting or acting as the client's agent in the issuance of securities (or both).These banks are responsible for find sources of money for their client as well as perform other functions such as handle their initial public offerings (IPO) trade securities and facilitate mergers and acquisitions. They also become a guide for their clients, advising them on business matters. These banks do not function on deposits from the general public, but rather earn money in fees by taking on huge clients and managing all their financial needs.

A merchant bank is a financial institution that provides capital to companies in the form of share ownership instead of loans. The company purchases a percentage in the company, equivalent to purchasing shares. Additionally, they also provide advice on corporate matters to their clients. In certain countries, such as the United Kingdom, merchant banking is equivalent to investment banking. The U.S. Federal Deposit Insurance Corporation (FDIC) defines merchant banking, “to mean negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies.” Originally, these banks were supposed to help facilitate and/or finance production and trade of commodities.

Comparison between Investment Banking and Merchant Banking:

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