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compensating balance

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Compensating balance
An excess balance that is left in a bank to provide indirect compensation for loans extended or services provided.
compensating balance
The funds that a corporate borrower is required to keep on deposit in a financial institution in order to satisfy the terms of a loan agreement. The deposit may be in a checking account, savings account, or certificate of deposit, depending on the nature of the agreement. The net effect of a compensating balance requirement is an increase in the effective cost of the loan because the borrower is unable to use all the funds on which interest is paid.


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In order to compete for the liquid assets of businesses, banks set up complicated procedures to pay implicit interest on compensating balance accounts.
Testimony of Federal Reserve Officials by Federal Reserve Bulletin
Selected Balance Sheet Information (In thousands) September 30, December 31, 2001 2000 (unaudited) (audited) Cash, cash equivalents and short-term investments (including compensating balance of $5 million) $9,707 $8,151 Working capital 3,050 1,201 Total assets 15,358 14,969 Long-term obligations 228 548 Preferred stock, subject to redemption 5,081 5,081 Stockholders' equity 1,327 927 Questcor Pharmaceuticals, Inc.
Questcor Product Revenues More Than Double in Third Quarter; 125% ... by Business Wire
Selected Balance Sheet Information (In Thousands) (unaudited) June 30 December 31, 2001 2000 ----------------- ------------------ Cash, cash equivalents and short-term investments (including compensating balance of $5 million) $ 6,754 $ 8,151 Working capital 318 1,201 Total assets 12,738 14,969 Long-term obligations 355 548 Preferred stock 5,081 5,081 Stockholders' equity (deficit) (971) 927 Questcor Pharmaceuticals, Inc.
Questcor Reports 90% Revenue Growth During Second Quarter; Company ... by Business Wire
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