Banks can optimize the value of these deposits, whereas mortgage bankers typically use them as compensating balances
that reduce their cost of financing.
A corn producer that thinks she will produce 15,000 bushels of corn but only sells one corn futures contract as a hedge is severely under-hedged by 10,000 bushels and will not have compensating balances
In the mid-1970s, banks started eliminating compensating balances
and raised corporate loan rates.
Provide a choice of receiving an invoice and paying directly for services or does it insist on payment through earned credit on compensating balances
through account analysis?
Keep in mind that some banks may charge a different rate for service fees than for compensating balances
The second and third illustrative letters (not reproduced here) may be used to confirm compensating balances
and lines of credit, respectively.
The higher the earnings credit rate, the more the compensating balances
and a sweep account are not requirements, but could be a potential component of improved efficiencies to be considered.
Those funds are used as compensating balances
to reduce the rate of interest charged by the warehouse lender for the borrowed funds.
While the Company has agreed to register these escrowed shares, it cautions investors that these shares are being provided as collateral and compensating balances
, and are not for immediate resale purposes.
These clearing balances are similar to the compensating balances
offered by depository institutions to their business customers.