What is the '3-6-3 Rule'

Slang used to refer to an "unofficial rule" under which the banking industry once operated, which alludes to it being noncompetitive and simplistic.

The 3-6-3 rule describes how bankers would give 3% interest on depositors' accounts, lend the depositors money at 6% interest and then be playing golf at 3pm. This alludes to how a bank's only form of business is lending out money at a higher rate than what it is paying out to its depositors.

BREAKING DOWN '3-6-3 Rule'

Many attribute the problems faced by the banking industry during the events that lead up to the Great Depression as reasons why the government implemented tighter banking regulations. These regulations controlled the rates at which banks can lend and borrow money. Unfortunately, the regulations made it difficult for banks to compete with each other and the banking industry became stagnant.

However, with the loosening of banking regulations and the widespread adoption of information technology such as the internet, banks now operate in a much more competitive and complex manner. For example, banks are now providing insurance, brokerage and other forms of financial services.

RELATED TERMS
  1. Advance Dividend

    An estimate of the present value of an asset being liquidated ...
  2. Bank Failure

    The closing of an insolvent bank by a federal or state regulator. ...
  3. Bank

    A financial institution licensed as a receiver of deposits. There ...
  4. Notice Of Withdrawal

    A notice given to a bank by a depositor. As its name implies, ...
  5. Silent Bank Run

    A situation in which a bank's depositors withdraw funds en masse ...
  6. Negative Interest Rate Policy (NIRP)

    A negative interest rate policy (NIRP) is an unconventional monetary ...
Related Articles
  1. Investing

    What is a Bank?

    A bank is a financial institution licensed to receive deposits or issue new securities to the public.
  2. Insights

    Negative Interest Rate Policy (NIRP)

    A negative interest rate policy is an unconventional monetary policy tool in which nominal target interest rates are set below zero.
  3. Investing

    What Does a Financial Intermediary Do?

    A financial intermediary is an institution that acts as a go-between in a financial transaction.
  4. Insurance

    How the Federal Deposit Insurance Corporation (FDIC) Works

    Learn more about the Federal Deposit Insurance Corporation (FDIC) and what happens to your deposits over $250,000 if a member bank fails.
  5. Financial Advisor

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
  6. Investing

    Explaining Term Deposits

    A term deposit (more often called a certificate of deposit or CD) is a deposit account that is made for a specific period of time.
  7. Insurance

    Insurance Companies Vs. Banks: Separate And Not Equal

    Insurance companies and banks are both financial intermediaries. However, they don't always face the same risks and are regulated by different authorities.
  8. Personal Finance

    Bank Profitability in the Era of Low Interest Rates

    The "low-for-long" policy on interest rates presents a major challenge to bank profitability.
RELATED FAQS
  1. What factors are the primary drivers of banks' share prices?

    Find out which factors are most important when determining the share price of banks and other lending institutions in the ... Read Answer >>
  2. Why do longer term CDs pay a higher rate than the short-term CDs?

    To address this question, let's employ the concept of distance. In the city, a short taxi ride from your hotel to a convention ... Read Answer >>
  3. Why would you keep funds in a money market account and not a savings account?

    Read about the differences between money market accounts and savings accounts, and see why a depositor would elect a money ... Read Answer >>
  4. What economic indicators are important to consider when investing in the banking ...

    Find out which economic indicators are most useful for investors in the banking sector, especially those influenced by central ... Read Answer >>
  5. How do I open a Swiss bank account, and what makes them so special?

    Surprisingly, opening a Swiss bank account is not that much different from opening a standard bank account because you have ... Read Answer >>
  6. What is the rate of return I can expect on a savings account?

    Find out what kind of return you can expect from the cash balance in your savings account and why interest rates have been ... Read Answer >>
Trading Center