Banks often require borrowers to maintain an average amount in their checking accounts as a requirement of getting a loan. This is known as:

Question

Quizplus · Accepted Answer

A compensating balance is a requirement by a bank that borrowers maintain a certain amount of funds in their checking account. This acts as collateral for the loan and ensures that the bank has access to the borrower's funds in case of default on the loan. This is different from a general line of credit, which offers a set amount of credit to a borrower, and commercial paper or pledged receivables, which are forms of short-term financing for businesses. Guaranteed credit is not a common banking term.

Banks Often Require Borrowers to Maintain an Average Amount in Their