DEFINITION of 'Bank Endorsement'

A bank endorsement is an endorsement by a bank for a negotiable instrument, such as a banker's acceptance or time draft. This assures any counterparty that the bank will stand behind the obligations of the creator of the instrument.

BREAKING DOWN 'Bank Endorsement'

Bank endorsements are common in international trade, wherein the business parties are typically unknown to one another. Banks stand in the middle by assuring good funds to the recipient. A bank endorsement, in the case of a banker's acceptance, for example, is the equivalent of a guarantee. A banking institution will generally not provide a banker’s acceptance without reasonable likelihood that it would be able to provide the funds as specified.

Bank Endorsements: Examples With Bankers Acceptances and Time Drafts

As noted above, bank endorsements often accompany specific negotiable instruments. Negotiable instruments, including bills of exchange, promissory notes, drafts and certificates of deposit, represent payment promises to a specified person (the assignee). Checks are common forms of negotiable instruments.

Bankers acceptances are similar to T-Bills in that they are short-term debt instruments. Yet while T-bills are associated with the U.S. government, a company issues bankers acceptances, which a commercial bank then guarantees. Due to the perceived safety of bankers acceptances, these instruments commonly facilitate international institutions’ completing transactions; at times, bankers acceptances can eliminate the need to extend credit.

For example, an American wine importing business may issue a banker’s acceptance with a date beyond when the South African wine cases are expected to be delivered. This allows the South African exporting business to have a payment instrument in hand prior to finalizing a shipment, which can help smooth any obstacles within such an international deal, including any disparate regulations, language barriers, and/or variances in infrastructure.

Money market funds  often include both T-bills and bankers acceptances. Bankers acceptances are traded at a discount from face value on the secondary market.

A time draft is foreign check, guaranteed by an issuing bank. However, a time draft is not payable in full until a specified amount of time after the receiving party accepts it. As with bankers acceptances, time drafts are associated with short-term credit, on which companies can rely for the financing of goods in international trade. Time drafts allow the buyer a delay in payment after accepting a shipment of exported goods. Time drafts become trade acceptances after a buyer accepts.

A twist on the time draft is that an exporter may hold this acceptance until maturity (at which point she or he will be paid in full), or the option exists to sell the instrument prior to maturity at a discount and obtain earlier access to the funds. “Tenor” and "usance” are terms used between acceptance and maturity. For this reason, time drafts are also called  "usance drafts."

  1. Banker's Acceptance - BA

    A banker's acceptance (BA) is a short-term debt instrument issued ...
  2. Time Draft

    A time draft is a form of short-term credit used for financing ...
  3. Payable Through Draft

    Payable through draft is a payment by a specific bank. Corporations ...
  4. Treasurer's Draft

    A treasurer's draft is a type of bank draft that is payable through ...
  5. Bankers' Bank

    A bankers' bank is a specific type of bank that a group of larger, ...
  6. Two Name Paper

    A two name paper is a nickname assigned to a legal agreement ...
Related Articles
  1. Personal Finance

    Investment Banker: Job Description & Average Salary

    Identify what investment bankers do in a typical work day, learn what skills are needed to be successful and understand how investment bankers get paid.
  2. Personal Finance

    Private banker: Job description and average salary

    Discover what a career in private banking entails, including a job description, education and training, necessary skills and licensing, and salary.
  3. Personal Finance

    Investment Banking Vs. Private Banking Careers

    Examine the two potential financial career options of investment banking and private banking,with an eye toward choosing the most suitable career.
  4. Financial Advisor

    Career advice: Financial analyst versus investment banker

    Discover an in-depth comparison between working as a financial analyst versus working as an investment banker. Find out what advice you can get from these two highly prestigious business careers. ...
  5. Small Business

    5 Apps Every Investment Banker Should Have

    Learn more about how apps for various platforms benefit investment banking, and discover five apps all investment bankers should download.
  6. Personal Finance

    Careers: Equity research versus investment banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
  7. Financial Advisor

    Career Advice: Investment Banking vs. Wealth Management

    Take a comparative look at two of the most popular career choices in the financial sector, wealth management and investment banking.
  8. Personal Finance

    The Top 5 Skills an Investment Banker Needs

    What are the top skills investment bankers need to have? Are i-bankers born or made?
  9. Financial Advisor

    Investment banking vs. investment management

    Review an in-depth comparison between investment banking and investment management, their respective career paths and which one you should choose.
  10. Personal Finance

    The Rise of the Modern Investment Bank

    Get to know a little bit about investment banks, the institutions whose actions help guide free markets.
  1. How can I cancel a bank draft that I have purchased?

    Learn about a bank draft, how it works, the circumstances under which a bank draft may be cancelled, and what the cancellation ... Read Answer >>
  2. What are some roles of an investment bank?

    Explore the world of investment banking and discover the various functions investment bankers serve, such as handling IPOs ... Read Answer >>
Trading Center