3-6-3 Rule

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. Silent Bank Run

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

    A negative interest rate policy (NIRP) is an unconventional monetary ...
  6. Regulation F

    A regulation set forth by the Federal Reserve. Regulation F specifies ...
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. Markets

    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. ETFs & Mutual Funds

    What Does a Financial Intermediary Do?

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

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  5. Investing

    The Banking System: Commercial Banking - Where Commercial Banks Are Vulnerable

    ByStephen D. Simpson, CFA Credit RiskCredit risk is arguably the most obvious risk to a bank. A bank's business model is basically predicated on the idea that the large majority of lenders will ...
  6. Personal Finance

    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. Markets

    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. Investing

    The Industry Handbook: The Banking Industry

    If there is one industry that has the stigma of being old and boring, it would have to be banking; however, a global trend of deregulation has opened up many new businesses to the banks. Coupling ...
  9. Markets

    The Banking System: Commercial Banking - Bank Crises And Panics

    ByStephen D. Simpson, CFA It is not altogether unreasonable to say that the history of banking in the United States is a history of panics and crises. Most history books cite at least ten distinct ...
  10. Investing

    The Banking System: Commercial Banking - Economic Concepts in Banking

    ByStephen D. Simpson, CFA Banks both create and issue money. While commercial banks no longer issue their own banknotes, they are effectively the distribution system for the notes printed, and ...
RELATED FAQS
  1. Why is the capital adequacy ratio important to shareholders?

    Understand what the capital adequacy ratio is and why it is a very important metric of financial soundness for evaluating ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center