compensating balance
- noun
- /ˈkɒmpənˌseɪtɪŋ ˈbæləns/
- Specialized
:
saldo compensatorio
- To qualify for the loan, the bank required a compensating balance of $5,000 to be maintained in the account.
Examples
-
However, the payment of fees has been gradually replacing the use of compensating balances, especially for the large customers of large banks, some of whom have their demand deposit balances automatically swept out at the end of the day to earn interest overnight.
Academic text (1992) -
The results of a Federal Reserve study (Mahoney 1988) indicate that most of these zero interest deposits are held by businesses and count as compensating balances.
Academic text (1992) -
The small business kept a compensating balance with the bank to secure a line of credit for future expenses.
-
Many lenders ask for a compensating balance to ensure borrowers have some funds in the bank when they take out a loan.
Synonyms
A minimum amount of money a bank asks you to keep in an account while you have a loan
Surface Forms
Morphology
The components are partially compositional: 'compensating' (making up for or offsetting) plus 'balance' (money in an account) yields the idea of money held to compensate or offset something, so a learner can guess it refers to an amount of money. However, the precise institutional meaning — that it is a required minimum held as a condition for a loan — is a specialized banking sense not fully predictable from the words alone, so it is not fully transparent to a B1 learner.
Etymology
The term compensating balance comes from banks asking borrowers to keep a small balance in their account to compensate the bank for lending money, like a safety cushion. So it means the minimum money the bank requires you to keep while you have a loan.
