A compensating balance requirement means that a lending institution will require a borrowing company to keep a certain percentage of the loaned amount on deposit with that institution.

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A compensating balance requirement is a common practice among lending institutions to ensure that the borrower maintains a certain level of funds in its account with the lender. This allows the lender to mitigate its risk and earn some interest on the deposited funds, while the borrower can still access the remaining loan amount for its operations or investments.

A Compensating Balance Requirement Means That a Lending Institution Will