What is the 3-6-3 Rule?

The 3-6-3 Rule provides a demonstration of how the banking industry was operated or viewed between the 1950s and the late 1980s. This phrase meant that bankers would have offered 3% interest on deposits, lent that money at 6% on loans, and then enjoyed the golf at 3 o'clock on the course.

The 3-6-3 Rule sought to explain how banks operate and, to a lesser extent, how savings and loan organizations function and was cited by the federal government as one of the elements that contributed to stronger financial regulations. The mortgage loan interest rate was 6% in the pre-high-stress financial market days of the 1950s and 1960s, the golf game used to begin at 3 pm, while the savings accounts were paid only 3% interest.

By the time of the savings and loans crisis in the 1980s, this unwritten norm was only a distant memory. However, it highlights how less competitive the then-heavily regulated banking sector was.

The establishment of banks, the placement of their branches, and the amount of interest charged or paid were all strictly regulated to combat the corruption and shady business practices that preceded the economic miseries of the Great Depression.

In other words, there was minimal corporate rivalry, and the industry stagnated because banks could only accept deposits and make loans. Some giant banks prospered in their monopolies, but generally, bankers led settled lives, worked fewer hours, held positions of prestige and influence, and enjoyed predictable and steady revenues. In those days, banks would close promptly at 3 pm and never open on the weekends.

Example of the 3-6-3 Rule

The banking industry is much more competitive today, and banks have used technology to grow and integrate with industries like insurance and investment brokerage. The regulatory limitations were lowered by 1982. Additionally, bankers were no longer able to rely on the 3-6-3 Rule or the existence of this idea anymore, due to the growing need for aggressive customer acquisition.

The fierce competition in the banking, mortgage plus loan, and savings market divisions is best illustrated by a real-world example of the financial options available to customers today.

Mortgage seekers merely need to go online, where hundreds of options from reliable lenders around the nation are waiting. These service providers promote their interest rates and occasionally their fees in addition to looking to lend money or get clients to make pricing comparisons simpler.

A consumer of mortgages is also deluged with non-real estate financing options like home equity loans or credit card solicitations, of which about 4 billion are addressed annually. Even in places where these banks are not physically present, bank branches or automated transaction outlets are common there, especially in shopping malls.

This is now considered the most critical factor in the competitiveness of the highly charged banking sector that effectively contradicts the 3-6-3 Rule of earlier financial delivery techniques, which did not mature before the 1980s.

Impacts of the 3-6-3 Rule

Banking relegations were gradually eliminated or wholly lifted in the decades that followed the 1970s, and soon after, the industry began to adopt new technologies broadly. Compared to when they worked under the 3-6-3 norm, today's banks operate in a more complicated, competitive manner and offer a broader range of services.

Banks now provide customers with retail and business financial products and wealth and investment management services. Local offices of larger commercial banks that offer checking and savings accounts, mortgages, personal loans, certificates of deposits, and credit or debit cards also deal with individual customers.

Such investment banks can manage the assets of specific clients as well as the funds that institutional investors typically manage. Additionally, these bankers provide alternate options for brokering IPOs and investment products like hedge funds.

High-net-worth or ultra-high-net-worth individuals are catered to by wealth management banks, which provide personalized financial advice to fit their needs. These elite banking companies also offer specialized estate planning, tax preparation, and investment management services.

The 3-6-3 Rule's Past

Following the Great Depression, banking sector regulations reduced competition, giving some institutions monopoly power. Strong evidence suggests that banks in states that encouraged unit banking while forbidding branches underperformed relative to states with fewer branching restrictions.

According to economist Mark Flannery, limiting branches stifled competition and permitted banks to earn above-average profits in jurisdictions that prohibited unit branching. These financial institutions engaged in anti-competitive behavior by paying lower interest rates on deposits while imposing higher rates on loans.

Before the emergence of similar banks, banks frequently avoided these regulations because they weren't as rigorous in some jurisdictions as in others. From the 1960s to the 1970s, there were restrictions on where things could be relaxed.

By the time branching restrictions were removed in the 1980s, the number of banks and their branches had started to expand in many places.

In his novel "Liar's Poker", Michael Lewis refers to the 3-6-3 Rule. He describes it as a "thriftier" or moneylender who takes loans at 3%, lends the money out at 6%, and is on the golf course by 3 pm. The author portrays this three-six-three man as a middle-aged, balding gentleman who is just concerned with making money.

The capacity of banks to evade regulation helped to mitigate or lessen some of the negative consequences of post-depression regulations, but the lack of competition permitted monopolistic profits. However, the later ability of non-bank loans and savings institutions to provide comparable financial products restrained this monopoly.