A banker’s acceptance is an order in the form of a time draft (also referred to as a bill of exchange or a usance draft) drawn by one party (the drawer) in favor of itself or another party (the payee), addressed to (drawn on) a bank (the drawee), and accepted by that bank to pay the holder a certain sum on or before a specified date. The bank’s acceptance of this order from the drawer, by stamping "ACCEPTED" across the face of the draft and dating and signing the stamp, is a formal acknowledgement of the obligation and constitutes an unconditional promise by that bank to honor the time draft at maturity. The drawee bank creating the acceptance is primarily liable for the instrument while the payee, as first endorser, is secondarily liable for paying the holder in due course. If the drawee (acceptor) is other than a bank, the instrument is a trade acceptance, not a banker’s acceptance. Most banker's acceptances are used to finance trade transactions, accordingly, acceptances are often created in connection with a letter of credit. The established market for banker’s acceptances in the United States is regulated by the Federal Reserve System. Federal Reserve Banks are authorized to discount or purchase eligible banker’s acceptances subject to qualitative and quantitative limits, thus providing a source of liquidity to the selling banks. The creation of banker’s acceptances is governed by section 13 of the Federal Reserve Act, which establishes criteria that must be met for the instrument to be eligible for either discount or purchase by a Federal Reserve Bank. Ineligible acceptances, unlike those that are eligible, are subject to reserve maintenance requirements, thus raising the cost to the borrower over that of an eligible acceptance. Section 207 of the Bank Export Services Act, which amended section 13 of the Federal Reserve Act, limits the aggregate amount of eligible banker’s acceptances that may be created by a member bank to 150 percent (or 200 percent with the permission of the Board) of its paid-up and unimpaired capital stock and surplus. In addition, member banks are prohibited from creating eligible banker’s acceptances for any one person in the aggregate in excess of 10 percent of the institution’s capital. Eligible banker’s acceptances growing out of domestic transactions are not to exceed 50 percent of the aggregate of all eligible acceptances authorized for a member bank. Banker’s acceptances as a source of financing and investment offer significant advantages to borrowers, accepting banks, and investors alike. Over the years, a banker’s acceptance has often been a cheaper financing vehicle than a loan since it is readily marketable, considered an important secondary reserve for the accepting bank, and a relatively secure investment to the investor because of its two-name backing. (Federal Reserve-Commercial Bank Examination Manual)