What Is the 3-6-3 Rule?

What Is the 3-6-3 Rule?

Let me explain the 3-6-3 rule to you directly—it's a slang term that captures an unofficial practice in the banking industry during the 1950s, 1960s, and 1970s, stemming from the non-competitive and straightforward conditions of that era.

In those days, bankers would typically offer 3% interest on depositors' accounts, lend that money out at 6% interest, and then head off to play golf by 3 p.m. A big chunk of a bank's business revolved around lending money at rates higher than what they paid to depositors, thanks to the tighter regulations in place. This difference is what we call the net interest rate spread—the gap between what a bank earns from interest-generating activities and what it pays out on interest-bearing accounts.

Understanding the 3-6-3 Rule

After the Great Depression, the government stepped in with stricter banking regulations to address the corruption and lack of oversight that contributed to the economic collapse. These rules controlled the rates at which banks could lend and borrow money, making it hard for them to compete against each other and restricting the services they could offer clients. Overall, this led to a more stagnant banking industry.

Things changed with the loosening of regulations and the rise of information technology starting in the decades after the 1970s. Today, banks function in a far more competitive and complex environment. For instance, they now provide a broader array of services, including retail and commercial banking, investment management, and wealth management.

Types of Banking Services

If you're dealing with retail banking services, these are typically offered through local branches of larger commercial banks, focusing on individual customers. You'll find offerings like savings and checking accounts, mortgages, personal loans, debit and credit cards, and certificates of deposit (CDs). The emphasis here is on serving everyday consumers rather than large entities like endowments.

For investment management, banks handle collective investments such as pension funds and oversee individual client assets. They might also provide access to traditional and alternative products not available to average retail investors, including IPO opportunities and hedge funds.

Wealth management services often target high-net-worth and ultra-high-net-worth individuals. Financial advisors in these banks create customized financial solutions, offering specialized services like investment management, income tax preparation, and estate planning. Many of these advisors pursue the Chartered Financial Analyst (CFA) designation to demonstrate their expertise and integrity in investment management.

Does the 3-6-3 Rule Still Apply?

The 3-6-3 rule was specific to the banking conditions of the 1950s, 1960s, and 1970s, when regulations were tight and lending practices were uniform. It implied banks paid 3% on accounts, lent at 6%, and wrapped up by 3 p.m. But with looser regulations starting in the 1970s, this model shifted.

Why Is the 3-6-3 Rule No Longer True?

Regulatory changes in the 1970s allowed banks to compete more aggressively, leading to profit structures that went beyond the simple 3-6-3 framework.

What Does the Expression Banker's Hours Mean?

The term 'banker's hours' refers to a shorter workday compared to most businesses, traditionally from 9 a.m. to 5 p.m. In contrast, bankers were known to work from 10 a.m. to 3 p.m., aligning with the limited hours banks were open back then.

The Bottom Line

To wrap this up, the 3-6-3 rule is an outdated slang from the 1950s to the 1970s that described banking as simply paying 3% on deposits, charging 6% on loans, and closing by 3 p.m. It faded as regulations eased in the 1970s, fostering competition and a wider range of services and rates among banks.