Bank Confirmation Letter – Definition

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Bank Confirmation Letter Definition

A bank confirmation letter (BCL) refers to a letter from either a bank or any other financial institution asserting the existence of a line of credit or a loan which has been extended to a borrower. This BCL officially vouches that the borrower, usually an individual, organization, or company, is qualified to borrow a certain amount of money for a certain purpose.

A Little More on What is a Bank Confirmation Letter

The purpose of a bank confirmation letter is to guarantee a third party, usually a seller, that the borrower can access enough financial resources for the completion of a transaction, like purchasing goods. The bank confirmation letter, also known as a comfort letter, isn’t a payment guarantee, but only a guarantee of the financial resources of the borrower to make payment.

The confirmation letter functions to assure every concerned party involved in a business transaction or deal that the borrower either has or has available, the required financial resources to finish the transaction. Typically, such letters require the signature of either the financial institution or bank representatives who are permitted to issue correspondence such as this.

Since a confirmation letter is issued in relation to a specific project or transaction, and it cannot be transferred to another project or transaction. If the customer of the bank or borrower decides on entering another purchase or deal – for instance, if an intending home buyer chooses to purchase a home different from the one stated in a BCL – the customer typically is required to get a new confirmation letter.

Regulations differ from country to country in relation to whether and also to what extent a confirmation letter must specify the exact purpose for which a line of credit or loan is being extended to a borrower.

A bank confirmation letter is usually prepared for a bank’s business customer, affirming that a specified line of credit exists. This letter often reassures sellers of goods in large quantity. This letter may be given for a company that plans on entering a joint venture project with a different company. While this confirmation letter doesn’t guarantee the provision of funds or payment, it assures a high possibility of the company getting payment from the customer of the bank.

The commonest use of this letter by someone is while purchasing land or home. In situations such as these, bank confirmation letter gives confirmation to a realtor or seller that the customer of the bank is certified for a mortgage up to a stated amount for an intended purchase. The letter isn’t a commitment to purchase the property; it’s only a reassurance that the borrower has access to money to complete a purchase.

References for Bank Confirmation Letter

Academic Research on Bank Confirmation

Importance of Information Technology (IT) Knowledge in Brokering of Oil and Gas in International Business, Singh, S. (2014). (Doctoral dissertation, Universiti Malaysia Sarawak).

The international banking system: capital adequacy, core businesses and risk management, Lessambo, F. I. (2013). Palgrave Macmillan.

Preliminary agreements, Tarrant, J. O. H. N. (2006). University of New England Law Journal, 3, 151-186.

Emerging Law of Standby Letters of Credit and Bank Guarantees, The, Kozolchyk, B. (1982). Ariz. L. Rev., 24, 319.

A summary of research and enforcement release evidence on confirmation use and effectiveness, Caster, P., Elder, R. J., & Janvrin, D. J. (2008). Auditing: A Journal of Practice & Theory, 27(2), 253-279.

Enforcement release evidence on the audit confirmation process: Implications for standard setters, Janvrin, D., Caster, P., & Elder, R. (2010). Research in Accounting Regulation, 22(1), 1-17.

Analyzing Bank Drafted Standby Letter of Credit Rules, The International Standby Practice (ISP98), Dolan, J. F. (1999). Wayne L. Rev., 45, 1865.

The Correspondent Bank in the Letter-of-Credit Transaction, Dolan, J. F. (1992). Banking LJ, 109, 396.

Automating the confirmation process, Aldhizer, G. R., & Cashell, J. D. (2006). The CPA Journal, 76(4), 28.

Increasing confirmation response rates: Prenotifications, monetary incentives and addressee differences, Engle, T. J. (1991). Journal of Accounting, Auditing & Finance, 6(1), 109-121.

Non-commercial organization confirmation reliability in audits–a credit union as a case, Warren, C. S. (1974). The CPA Journal (pre-1986), 44(000002), 67.

The Law Merchant and the Letter of Credit, Trimble, R. J. (1948). Harvard Law Review, 61(6), 981-1008.

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