Following is an excerpt from "Merchant Banking: Past and Present" by Valentine V. Craig, published by the Federal Deposit Insurance Corporation www.fdic.gov/bank/analytical/banking/2001sep/article2.html):
Merchant banking has been a very lucrative-and risky- endeavor for the small number of bank holding companies and banks that have engaged in it under existing law. Recent legislation has expanded the merchant-banking activity that is permissible to commercial banks and is therefore likely to spur interest in this lucrative specialty on the part of a greater number of such institutions.
a. What is meant by "merchant banking"?
b. What are the risks associated with merchant banking?