What Is a Merchant Bank?

David Senra, reading Joseph Wechsberg's The Merchant Bankers, says a merchant bank is a private family business that made money by selling its signature on credit instead of goods. Nearly all of them started as merchants. They traded commodities, handled their own affairs, then financed friends and clients and left the actual trading to others. A signature was easier to sell than a bale of silk, and more profitable. As they grew in stature, they could borrow more cheaply than other merchants, guarantee a transaction by accepting the bill of exchange, and collect a small commission. That was the beginning of merchant banking.

Separate families arrived at those same conclusions on how to run the business even before they knew one another. Of all their assets, integrity and common sense were the most important: commercial honor, absolute fairness, and a willingness to suffer a loss rather than tarnish the firm's name with one unworthy act. Character was prized more than wealth. What Senra admires is that they took the longest view in the room.