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- ✓Uncommitted = discretionary, can be withdrawn in stress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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