BANK ACCEPTANCES, bills of exchange or drafts drawn by individuals, firms, corporations, or other bankers for varying periods after date or after sight, and accepted by banks or bankers. The U.S. Federal Reserve Board officially defines the bank accept ance as "a draft or bill of exchange, whether payable in the United States or abroad and whether payable in dollars or other money, of which the acceptor is a bank or trust company, a firm, person, company or corporation engaged generally in the business of granting bankers' acceptance credits." Bank acceptances are used primarily as a means of financing importing and exporting operations, but are also used in domestic transactions, being drawn against warehoused commodities or against the domestic shipment of goods.
In operation the bank acceptance is simple and effective. The buyer or receiver of goods, usually an importer, arranges with his bank to permit the seller or shipper of the goods, usually an exporter, to draw on the institution for the price of the goods, payable at a specified future time. Upon receipt of the draft or bill of exchange the bank accepts it by stamping on the face the word, "Accepted," together with the due date, the place of pay ment and the bank's signature. The acceptance is then returned to the seller of the goods and may be held by him till due and then collected, or may be discounted at any time. Foreign trade transactions are thus greatly facilitated because a bank of recog nized standing substitutes its credit for that of the buyer or importer of goods and gives the seller "Grade A" paper which is available for immediate conversion into cash through discount. The accepting bank, of course, requires the buyer of goods to put it in funds to pay the acceptance upon maturity, which require ment is in the United States governed by the following rules observed by most banks : "The accepting bank shall require from its clients that it be placed in funds to meet acceptances on the day of maturity either by (I) the deposit of clearing house funds one day prior to maturity, or (2) the deposit of cash or check on the Federal Reserve Bank of New York on the day of maturity, or (3) debit to the account of the bank's client on day of maturity against funds cleared on, or prior to, such date." The contractual liability of an accepting bank is, according to opinion of counsel of the Federal Reserve Board, practically the same as that of the maker of a note. Hence, the holder of a bank acceptance has substantially the same rights against the bank as has the holder of a promissory note against the maker. To offset this primary liability, however, the bank has not only the assurance of the purchaser of the goods that he will put the bank in funds to meet the acceptance at maturity, but also may hold title to the goods themselves through the shipping or warehouse documents.
United States national banks are permitted by law to accept up to only 5o% of their capital and surplus, but with the permis sion of the Federal Reserve Board may accept up to I00%; in no case, however, can the amount growing out of domestic transac tions exceed so%. The law further provides that a bank shall not accept for any one person, company, firm, or corporation, at any one time an amount exceeding io% of its paid-up and unim paired capital stock and surplus. (See BANKING AND CREDIT.)