Compensating balance

From CNM Wiki
Jump to: navigation, search

Compensating balance (also known by its acronym, CB) is a minimum checking account balance that a firm must maintain with a bank to compensate the bank for services rendered or for making a loan; generally equal to 10%–20% of the loans outstanding.


Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Compensating balance (CB). A minimum checking account balance that a firm must maintain with a bank to compensate the bank for services rendered or for making a loan; generally equal to 10%–20% of the loans outstanding.

Related concepts

Related lectures