What does a compensating balance require from depositors?

A compensating balance is indeed a requirement imposed by some banks where depositors must maintain a minimum cash balance in their accounts. This practice typically occurs in relation to loan agreements; banks may require borrowers to keep a specific percentage of the loan secured in a checking or savings account as a compensating balance.

This arrangement provides banks with a safety net and ensures they have funds readily available, even as they lend out money. By mandating a minimum balance, banks reduce their risk and can offer loans under terms that might be more favorable than they otherwise could. This is why the correct answer emphasizes the need for depositors to maintain these minimum cash balances.

The other options do not accurately reflect the nature of compensating balances. While lower fees and higher interest rates can be part of a bank's service offerings, they do not specifically relate to the requirement to keep a certain balance. Additionally, while banks may lend more money under certain conditions, this does not directly tie into the concept of a compensating balance, which explicitly focuses on maintaining funds that serve as a form of collateral for the bank.