The cash balance that a financial institution requires its customer to maintain in a non-interest-bearing account to offset a line of credit is a compensating balance.

Question

Quizplus · Accepted Answer

A compensating balance is a requirement by a financial institution for a borrower to maintain a certain minimum balance in a non-interest-bearing account to compensate for the credit extended to them. It is typically expressed as a percentage of the line of credit extended.

The Cash Balance That a Financial Institution Requires Its Customer