:max_bytes(150000):strip_icc()/Financial_District_Toronto_May_2012-aa67aa7304d44234bf64c653c1497b87.jpg "Understanding the 3-6-3 Rule: Historical Banking Practice Explained")
Key Takeaways
- The 3-6-3 rule refers to a historical banking practice from the mid-20th century characterized by a lack of competition and simpler operations.
- Banks operated by paying 3% on deposits, loaning at 6%, and closing business by 3 p.m., thereby ensuring steady profit margins.
- This rule highlights the banking industry’s previous lack of market competition and its reliance on predictable profit models.
- Modern banking practices have evolved with regulatory changes that foster competition and complex financial instruments.
Defining the 3-6-3 Rule in Banking
The 3-6-3 rule was a phrase used to describe how many banks operated from the 1950s to the 1970s. It suggested that bankers would pay 3% interest on deposits, lend the money out at 6%, and be on the golf course by 3 p.m. It reflected a time with fewer competitors in the banking industry, and when profits were predictable and steady. Keep reading to learn how the 3-6-3 rule shaped banking practices and how it impacted the industry.
Comprehensive Overview of the 3-6-3 Rule
After the Great Depression, the government implemented tighter banking regulations. This was partially due to the problems–namely corruption and a lack of regulation–that the banking industry faced leading up the economic downturn that precipitated the Great Depression. One result of these regulations is that it controlled the rates at which banks could lend and borrow money. This made it difficult for banks to compete with each other and limited the scope of the services they could provide clients. As a whole, the banking industry became more stagnant.
With the loosening of banking regulations and the widespread adoption of information technology in the decades after the 1970s, banks now operate in a much more competitive and complex manner. For example, banks may now provide a greater range of services, including retail and commercial banking services, investment management, and wealth management.
Exploring Various Banking Services
For banks that provide retail banking services, individual customers often use local branches of much larger commercial banks. Retail banks will generally offer savings and checking accounts, mortgages, personal loans, debit/credit cards, and certificates of deposit (CDs) to their clients. In retail banking, the focus is on the individual consumer (as opposed to any larger-sized clients, such as an endowment).
Banks that provide investment management for their clientele typically manage collective investments (such as pension funds) as well as oversee the assets of individual customers. Banks that work with collective assets may also offer a wide range of traditional and alternative products that may not be available to the average retail investor, such as IPO opportunities and hedge funds.
For banks that offer wealth management services, they may cater to both high-net-worth and ultra-high-net-worth individuals. The financial advisors at these banks typically work with clients to develop tailored financial solutions to meet their needs. Financial advisors may also provide specialized services, such as investment management, income tax preparation, and estate planning. Most financial advisors aim to attain the Chartered Financial Analyst (CFA) designation, which measures their competency and integrity in the field of investment management.
Does the 3-6-3 Rule Still Apply?
The 3-6-3 rule was a slang term for banking conditions in the 1950s, 60s, and 70s when government regulations were stricter and bank lending practices were more uniform. The term suggested banks paid account holders 3% interest, loaned out money at 6% interest, and were done with their work day and playing golf by 3 p.m. Looser regulations in the 1970s changed this.
Why Is the 3-6-3 Rule No Longer True?
When banking regulations changed in the 1970s, banks were allowed to operate in a more competitive manner, generating a different profit structure than the 3-6-3 rule would have allowed.
What Does the Expression Banker’s Hours Mean?
Banker’s hours as an expression means a shorter work day than what most businesses have, which was once 9 a.m. to 5 p.m. By comparison, bankers were said to work between 10 a.m. and 3 p.m., the hours that banks used to be open.
The Bottom Line
The 3-6-3 rule is an outdated slang term from the 1950s through the 1970s that referred to the perception that banking at the time consisted of paying account holders 3%, charging 6% when lending money, and calling it a day and leaving by 3 p.m. when banks used to close. The term became less relevant after regulations changed in the 1970s and banks became more competitive with each other and offered a greater variety of rates.
