A compensating balance refers to a minimum amount that must remain in a bank account as part of a credit-granting arrangement.

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A compensating balance is a requirement by some banks for borrowers to maintain a minimum balance in their account as a condition for receiving a loan or credit line. This balance is used to offset the risk taken by the bank and allow them to earn interest on the funds held in the account.

A Compensating Balance Refers to a Minimum Amount That Must