Compensating Balances

3 Accounting

3.2 Assets

3.2.5 Compensating Balances Some banks may require a government to maintain a predetermined average daily balance in noninterest bearing bank accounts to compensate the bank for handling the government’s bank services. A government’s procurement of banking services will normally consider costs such as fees, minimum balance and compensating balance requirements compared to benefits such as interest rates, locations and services, along with other factors as described in MRSC and GFOA advisory content. As part of their procurement of banking services, governments should consider whether the amount of foregone interest revenue is reasonable in relation to fees avoided in order to ensure the agreement does not represent a gift of public funds.