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 allows financial 
holding companies, a type of Bank Holding Company created 
by the act, to engage in merchant banking activities.