Group 6: FED’s Last 10 Years Discount Rates

This article aims to show you the evolution of the Federal Reserve’s discount rates over the last 10 years.

Nevertheless, before going into any details, let me briefly explain you what is the Federal Reserve and how it influences the economy.

What is the FED ?

The Fed is the gatekeeper of the U.S. economy. It is the bank of the U.S. government and, as such, it regulates the nation’s financial institutions. The Fed watches over the world’s largest economy and is, therefore, one of the most powerful organizations on earth.

« To promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest rates ». That is the Fed’s mandate and it clearly shows how it broadly impacts the US economy.

The Discount Rates are one of the FED’s main Tools to regulate the monetary system. Here is how they are used.

What are discount rates ?

The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. The rate that the borrowing institution pays to the lending institution is determined between the two banks; the weighted average rate for all of these types of negotiations is called the effective federal funds rate. The effective federal funds rate is essentially determined by the market but is influenced by the Federal Reserve through open market operations to reach the federal funds rate target.




For nearly six years, the Federal Reserve has held short-term interest rates at essentially zero to support the economy after the 2008 financial crisis. The severity of the Great Recession, and the Fed’s inability to lower interest rates below zero, led policy makers to use unconventional tools to stimulate the economy, such as quantitative easing (i.e., large scale asset purchases) and forward guidance. With strong employment gains and an improving economy, the Fed is now preparing the market for an eventual rate increase, perhaps as early as June 2015.

Past fed rate hike cycles

An exploration of past Fed tightening cycles starts with a review of how monetary policy adjustments work. One of the main tools Fed officials use to adjust policy is the federal funds rate. Whenever policy makers want to slow the growth rate of the economy and restrain inflation, they may raise interest rates, which is known as “tight”, “restrictive” or “contractionary” monetary policy. Conversely, whenever policy makers desire to spur the growth rate of the economy and increase the supply of money and credit, they lower interest rates, known as “easy”, “expansionary” or “accommodative” monetary policy.

Leading into the first rate hike

In most tightening cycles, inflation had either held steady, or only started to gradually rise after the Federal Reserve began to hike interest rates. It appears that the Fed’s decision to raise rates in each of the tightening cycles was driven by trends in the labor market and the central bank’s desire to be preemptive on the inflation front, rather than reacting to rapidly rising inflationary pressures.




Group 6: Prudential & HSBC: Doomed to Change Strategies after Brexit Annoucement

« HSBC is one of the world’s largest banking and financial services organisations serving around 46 million customers. Our aim is to be acknowledged as the world’s leading and most respected international bank. »

« Helping people and businesses worldwide with their insurance and financial needs as a trusted brand and one of the world’s most admired companies. »


The UK leaving the European Union led to significant consequences for asset managers and for the financial services.

HSBC chief executive Stuart Gulliver said trading operations that generate about 20 per cent of revenue for the lender’s investment bank in London may move to Paris, quantifying some of the aftershocks for the UK after Brexit. “Activities specifically covered by EU legislation will move, and looking at our own numbers, that’s about 20 per cent of revenue,” Gulliver said in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland.

More precisely, HSBC is planning to move up to 1,000 staff from the UK to Paris. Douglas Flint, HSBC’s chairman, said on Friday: « The work to establish fresh terms of trade with our European and global partners will be complex and time consuming.

« We will be working tirelessly in the coming weeks and months to help our customers adjust to and prepare for the new environmnent. »François Villeroy de Galhau, governor of the Bank of France, said this week: « It would be a bit paradoxical to leave the EU and apply all EU rules, but that is the solution if Britain wants to keep access to the single mark ».

HSBC has also announced that it will shut down 62 branches across the UK on the same day the Supreme court made its decision on the Brexit vote. The enormous cuts to the branch network could trigger up to 180 job losses, but the bank said it would try and redeploy staff where possible.

Ms McDonagh added: « More customers are using mobile and internet banking than ever before, innovation such as Touch and Voice ID has proved extremely popular, and fewer people are using branches.

She said the bank would offer customers « individual sessions » to help them bank with HSBC outside of the branch. « Our priority now is to work with our colleagues, our customers and the communities impacted by today’s announcement. « We are contacting customers to explain the decision and help them with alternative ways to bank with us.

Not only banks are affected by this decision but the whole Financial sector and most importantly, the insurance sector.

Prudential, the UK’s largest insurer by value, has said it is considering shifting funds from M&G, its assets management business, to Dublin or Luxembourg following UK’s vote to leave the EU.

A tenth of Prudential’s M&G’s £255.4 billion in assets under management are from EU clients. Anne Richard, the chief executive of M&G, said the decision to move assets will depend on the outcome of UK’s negotiations with the EU.

M&G’s operating profits dropped 10% to £225m in the first six months of the year, as investors pulled out nearly £7bn in the run-up to the EU referendum. The fund outflows are now slowing, after the Brexit vote triggered a spike in withdrawals.

« What we are trying to do as a business is give ourselves options so we are in a position to react and adapt to whatever negotiations come through over the next year or so regarding Brexit, » Richard said. « We have, at the moment, business domiciled in both Dublin and Luxemburg so both of those would potentially be options for us if we felt that we should have additional funds domiciled in continental Europe, » she added.



Group 6: How digital innovation is transforming banking

 Banking is a rapidly changing industry, and the biggest paradigm shift that has occurred is the move to digital-only banks.

Innovation Banking

As fintechs have flooded the scene and disrupted the financial industry, traditional banks have had to innovate in order to stay ahead of the pack.

Corporate investors, specifically traditional players, have started to increase their fintech investments in the last couple of years. This trend is likely to continue in the coming years as incumbents try to stake their claim to the most innovative fintech startups.

On top of this, the biggest banks have already set aside major resources to digitize their businesses. In fact, more than 40% of North American banks have dedicated more than 25% of their IT budget to digital transformation. This can include developing new consumer-facing products and services and modernizing core transactional systems.

To achieve this goal, most traditional banks will use third-party suppliers or will acquire fintech startups for education and mutual benefit.

High Growth in Mobile Banking

The payments segment is much more mature than other fintech areas, and a small handful of companies now dominate the business-to-consumer (B2C) space in particular.

PayPal is the undisputed leader in digital payments in the U.S. and Europe, while Apple Pay and Android Pay have taken over the top spots for in-store mobile payments all around the world. Furthermore, Alipay and WeChat are the top players in China.

A new wave of technologies – such as blockchain, digital wallets and robo-advice – is revolutionising the way we manage, control and distribute money. Gone are the days where you had to enter a bank to carry out a transaction. Just whip out your smart phone with your mobile banking app and you’re set. In fact, today you can even seek financial advice courtesy of automated computer programs – no human interaction required.

Almost every area of the finance industry is being disrupted by these new technologies, forcing the traditional banking sector to re-evaluate and invest in digital innovation, and changing the face of money as we know it.

Blockchain is a public digital ledger with a complete record of transactions, which is shared among a network of computers worldwide. It can be used to transfer anything of value, from money and bonds to house titles and contracts. The most common products currently using blockchain are digital currencies such as bitcoin.

“Banks in general have recognised that something that is publicly available, accessible and secure is potentially disruptive to the current banking model,” says Jonah Cretser-Hartenstein, Manager of Digital Innovation and Emerging Channels at ING DIRECT Australia. “We need to be exploring how we can leverage this technology to enhance our value proposition and potentially find new ways of delivering value to customers as the technology evolves.”


There were times when people dreamt of making payment without cash or Credit/Debit card. And now the dream came true when the service was announced by Apple in the form of Apple Pay. It is the feature that allows users to make payments through iPhone 6/iPhone 6 Plus or the Apple Watch. It requires no Credit/Debit cards to be scratched or shown while making pay.

Apple has linked up with nearly 16 top banks such as, American Express, Bank of America, PNC, etc. across the US for Credit/Debit card support; just add the information of your Credit/Debit card to your Passbook and make transactions on Apple Pay supported stores anytime in the US.