Banks sometimes require borrowers to maintain an average demand deposit balance equal to from 10 percent to 20 percent of the amount borrowed, this is called:

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The requirement for borrowers to maintain an average demand deposit balance equal to a percentage of the amount borrowed is known as a compensating balance. This is often required by banks as a way to ensure that borrowers maintain a certain level of liquidity, and it can range from 10 percent to 20 percent of the amount borrowed. A line of credit refers to a maximum amount of credit that a borrower can access, while a commitment fee is a fee charged by a lender to keep a line of credit open for a borrower. A revolving credit agreement is a type of credit facility where borrowers can continually access funds up to a certain limit, and repay and re-borrow as needed. None of these options accurately describes the requirement for maintaining a demand deposit balance.

Banks Sometimes Require Borrowers to Maintain an Average Demand Deposit