Banker's acceptances are distinguished from ordinary time drafts in that ownership is transferable prior to maturity, allowing them to be traded in the secondary market.
Banker's acceptances are advantageous in transactions between unacquainted parties by reducing credit risk, and are used extensively in international trade for this reason.
In an agreement whereby goods will be sold at a future date, if the buyer does not have an established relationship with or otherwise cannot obtain credit from the seller, a banker's acceptance enables it to substitute the bank's creditworthiness for its own.
[4] Banker's acceptances date back to the 12th century when they emerged as a means to finance uncertain trade, as banks bought bills of exchange at a discount.
When the United States Federal Reserve was formed in 1913, one of its purposes was to promote a domestic banker's acceptance market to rival London's to boost US trade and enhance the competitive position of US banks.
[5] In the People's Republic of China, banker's acceptance notes have become a shadow currency with captive banks of local governments issuing BA's to hide their debt levels.