compensating balance


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Related to compensating balance: interest
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Noun1.compensating balance - 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"
balance - the difference between the totals of the credit and debit sides of an account
Based on WordNet 3.0, Farlex clipart collection. © 2003-2012 Princeton University, Farlex Inc.
References in classic literature ?
Life works upon a compensating balance, and the happiness we gain in one direction we lose in another.
Unrestricted net assets may have contractual restrictions, such as a compensating balance arrangement; as a result, unrestricted net assets may, in fact, be restricted just not from the perspective of U.S.
Compensating Balance: A demand deposit usually required by a commercial bank as a condition for extending a line of credit or a bank loan.
In 1848, Hartnup devised an improved bi-metal compensating balance spring that resulted in a more accurate reading for the setting of longitude using chronometers.
The non-interest bearing compensating balance is determined by the volume of IOTA checking account activity and cost of the monthly "sweep fee." Funds in excess of the compensating balance are then automatically swept out of the IOTA checking account by the institution for overnight investment and re-deposited into the IOTA checking account at the start of business the next day.
One set of shifts in M1 demand affected corporations.(10) First, banks offered them preferable loan rates, provided that part of the loan was held in a demand deposit (known as a compensating balance).
For the distributors, working capital is freed up because the compensating balance requirements frequently assessed as part of the letter of credit application (along with other bank charges) have been eliminated.
In a compensating balance program, the insured pays the full premium in cash during the policy year, including all amounts for insurance company charges as well as a loss fund.
It may be more economical to pay a fee for these services to avoid minimum or compensating balance requirements.
Other advantages of leases are: They typically require no down payment and no compensating balance; lease payments may be tax deductible; leased equipment can be replaced more easily if it becomes obsolate; and there is flexibility in trading up.
"In 1848 he devised an improved bi-metal compensating balance spring that resulted in a more accurate reading for the setting of longitude.