The bank discount rate is the required rate of return of a safe investment guaranteed by the bank.
Assume an unsecured obligation (e.g., commercial paper) that matures in one year with a face value of $1,000 and a purchase price of $970.
($1,000 - $970) = $30 discount
$30/$970 = 3.1% rate of interest
To simplify calculations when determining the bank discount rate, a 360-day year is often used.