What is the 3-6-3 Rule?

The 3-6-3 rule was a straightforward and lucrative model for banks. Here’s how it worked: banks would pay depositors a steady 3% interest on their savings accounts. They would then lend this money out at a higher rate of 6% interest, creating a tidy profit margin. The simplicity of this model allowed banks to operate with minimal risk and maximum efficiency.
This method not only ensured profitability but also led to a stable and comfortable existence for bankers. With such predictable margins, there was little need for aggressive marketing or complex financial products. Bankers could enjoy a leisurely pace, often finishing their workday by 3 p.m., leaving ample time for activities like golf games in the afternoon.

Historical Context and Regulatory Environment

The post-Great Depression era saw significant regulatory changes in the banking industry. Tighter regulations were put in place to control interest rates and limit bank competition. The Glass-Steagall Act of 1933 and other legislation restricted banks from engaging in certain activities, such as investment banking, and limited the formation and location of new banks.
These regulations created a less competitive and more stagnant banking environment. Banks were not allowed to offer competitive interest rates or expand their services beyond traditional deposit-taking and lending. This regulatory framework ensured stability but stifled innovation and competition within the industry.

Impact on Banking Operations

Under the 3-6-3 rule, banking operations were characterized by a lack of competition among banks and uniformity in interest rates. Banks operated on traditional “banker’s hours,” typically from 9 a.m. to 3 p.m., Monday through Friday. This schedule reflected the predictable nature of their work.
The range of services offered by banks during this period was limited. They focused primarily on basic deposit accounts and straightforward lending products. There were no complex financial instruments or innovative services to speak of. This simplicity made banking straightforward but also somewhat dull.

Deregulation and Its Effects

The 1980s marked a significant shift with the deregulation of the banking industry. The Competitive Equality Banking Act of 1987 was a key piece of legislation that removed many of the restrictions imposed earlier. Deregulation opened up the banking sector to increased competition, leading to a more complex and varied banking landscape.
Banks began to offer a wider range of services, including retail and commercial banking, investment management, and wealth management. This expansion brought about more competitive interest rates and extended banking hours, benefiting consumers who now had more options and better services.

Comparative Analysis: Before and After Deregulation

Before deregulation, the banking industry was characterized by stability but lack of innovation. The 3-6-3 rule ensured steady profits but limited growth. After deregulation, banks faced increased competition which drove innovation and expansion.
Consumers benefited from more competitive interest rates and extended banking hours. Banks also began offering a diverse array of financial products, catering to a broader range of customer needs. However, this increased complexity also introduced new risks and challenges for banks.

Additional Insights

In recent years, especially following the 2007-2008 financial crisis, there has been some nostalgia for the stability provided by regulations like those that supported the 3-6-3 rule. However, it is crucial to balance stability with innovation to meet evolving consumer needs.
Other countries like Australia and the UK have also experienced similar regulatory shifts in their banking sectors. These international comparisons highlight that while specific regulations may differ, the underlying themes of stability versus innovation are universal concerns in banking policy worldwide.