Answers / Corporate Treasury

What is the difference between committed and uncommitted facilities, and why does only committed liquidity count as backup?

A core Corporate Treasury interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.

THE SHORT ANSWER

A committed facility is a contractual obligation by the bank to lend up to a limit for a fixed period, subject only to defined conditions — you pay a commitment fee for that certainty, and you can rely on drawing it (e.g., an RCF). An uncommitted facility (overdraft, uncommitted money-market line) is available at the bank's discretion and can be pulled at any time, especially in stress — which is exactly when you'd need it. For liquidity-buffer and CP-backstop purposes only committed, undrawn facilities count, because uncommitted lines evaporate when markets tighten. Rating agencies and prudent treasury policy explicitly exclude uncommitted lines from available liquidity. The trade-off is cost: committed lines carry fees, so firms balance how much committed backup to pay for.

WHAT INTERVIEWERS LISTEN FOR

  • Committed = contractual, fee-paying, reliable to draw
  • Uncommitted = discretionary, can be withdrawn in stress
  • Only committed counts as backup/buffer
  • Trade-off is commitment-fee cost

COMMON MISTAKES

  • Counting uncommitted lines as backup liquidity
  • Assuming overdrafts are always available
  • Ignoring commitment-fee trade-off

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