compensating balance

Other forms: compensating balances

Definitions of compensating balance

1. noun

   a minimum credit balance that a bank may require a borrower to keep on deposit as a condition for granting a loan; a common requirement for establishing a line of credit at a bank
   “the compensating balance increases the effective interest rate to the bank since the net amount loaned is reduced but the interest paid is unchanged”

   synonyms: offsetting balance

   type of:

   balance

   the difference between the totals of the credit and debit sides of an account