compensating balance meaning and definition

COMPENSATING BALANCE noun

Definition of compensating balance (noun)

1. a minimum credit balance that a bank may require a borrower to keep on deposit as a condition for granting a loan; a common requirement for establishing a line of credit at a bank
   • "the compensating balance increases the effective interest rate to the bank since the net amount loaned is reduced but the interest paid is unchanged"
   • synonyms: offsetting balance