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Prof. Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.

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Credit line (bank line)

The credit limit granted to an economic entity by the bank, sometimes also called credit limit and credit facility. Until this limit is reached, loans can be drawn from the bank at any time (a commitment of the bank to provide funds at the request of the borrower; a credit line can be seen as an option to raise a loan on predetermined terms and conditions). In this case, the term “overdraft facility” is often used, especially for credit lines for private accounts. – As long as no payment has been made from the credit line, it is an off-balance sheet position of the institution. However, as soon as a credit line is actually drawn down by the borrower, it becomes an item of the balance sheet, just like any other loan. – Since the beginning of 2008, special underwriting requirements have applied when banks grant irrevocable credit lines to special purpose entities for securitizations. – See call risk, off-balance sheet, back-up facility, bank customer profile, commitment fee, loan, borrowing power, insolvency, credit, short-term, credit card limit, loan commitment, irrevocable, funds, liquid, non-acceptance compensation, buffer, retransfer clause, subprime crisis, over-commitment, overdraft fee, overrunning, under-collateralization. – Cf. BaFin Annual Report 2007, p. 219 f. (generous internal limits [internal limit that is too generous and that well exceeds the approved credit line] increase the risk of misuse of the account).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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