compensating balance

A method of paying the bank for providing services.
(1) In lending, compensating balances are minimum balances that the bank requires a borrower to maintain with the bank as partial compensation to the bank for the credit facility.
(2) The amount of deposit balances necessary to offset the cost of deposit, cash management, or other bank services. Each period, usually monthly, the actual bank service charges applicable for the services used by the depositor are used to determine the level of balances to be left with the bank. Adjustments are made to reduce the deposit total for reserve requirements and float.
See account analysis. American Banker Glossary
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An excess balance that is left in a bank to provide indirect compensation for loans extended or services provided. Bloomberg Financial Dictionary

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compensating balance compensating balance balance1

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compensating balance UK US noun [C]
BANKING the amount of money that a customer who has taken out a loan with a bank or who uses the bank's services, has to keep in an account. This money does not earn interest: »

Restrictions may include legally restricted deposits held as compensating balances against short-term borrowing arrangements.


Financial and business terms. 2012.

Look at other dictionaries:

  • Compensating balance — An excess balance that is left in a bank to provide indirect compensation for loans extended or services provided. The New York Times Financial Glossary * * * compensating balance compensating balance ➔ balance1 * * * compensating balance UK US… …   Financial and business terms

  • compensating balance — noun 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… …   Useful english dictionary

  • Compensating Balance — A minimum balance that must be maintained in an account. The compensating balance is often used to offset a portion of the cost that a bank faces when extending a loan or credit to an individual or business, and is usually calculated as a… …   Investment dictionary

  • compensating balance — 1. Also, compensated balance, compensation balance. a balance wheel in a timepiece, designed to compensate for variations in tension in the hair spring caused by changes in temperature. 2. Banking. a deposit balance that is required to be left on …   Universalium

  • compensating balance — The balance a borrower from a bank is required to keep on deposit as a condition of the loan or for continuing line of credit …   Black's law dictionary

  • compensating balance — A sum of money deposited at a bank by a customer as a condition for the bank to lend money to the customer …   Accounting dictionary

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  • compensating balance — /ˌkɒmpənseɪt bæləns/ noun the amount of money which a customer has to keep in a bank account in order to get free services from the bank …   Dictionary of banking and finance

  • compensating balance — Fin 1. the amount of money a bank requires a customer to maintain in a non interest bearing account, in exchange for which the bank provides free services 2. the amount of money a bank requires a customer to maintain in an account in return for… …   The ultimate business dictionary

  • Balance wheel — in a cheap 1950s alarm clock, the Apollo, by Lux Mfg. Co. showing the balance spring (1) and regulator (2) …   Wikipedia

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