What is the '3-6-3 Rule'

The 3-6-3 rule is slang that refers to an unofficial rule in the banking industry that alludes to the condition of 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 3 PM. This alludes to how a bank's only form of business during the 1950s, 1960s, and 1970s was lending out money at a higher rate than what it is paying out to its depositors (due to tighter regulations).

BREAKING DOWN '3-6-3 Rule'

Many attribute the problems the banking industry faced 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 could lend and borrow money. Unfortunately, the regulations made it difficult for banks to compete with each other, and the banking industry became stagnant.

The 3-6-3 Rule and Increasing Complexities in Banking

With the loosening of banking regulations and the widespread adoption of information technology, banks now operate in a much more competitive and complex manner. For example, banks may now provide retail and commercial banking services, along with investment management and wealth management.

In retail banking (what many traditionally view as mass-market banking), individual customers use local branches of larger commercial banks. (Specific examples of retail bank include Citibank and T.D. Bank.) All retail banks will generally offer savings and checking accounts, mortgages, personal loans, debit/credit cards and certificates of deposit (CDs). In retail banking, the focus is on the individual consumer as opposed to a larger client, such as an endowment.

Investment management may entail managing both collective investments (such as a pension fund) and overseeing individual assets. For this reason, some deem asset management to encompass wealth management. Asset managers working with collective assets may offer a wide range of traditional and alternative products that may not be available to the average investor, such as IPOs and hedge funds.

Wealth management may cover both high net worth and ultra high net worth individuals. Financial advisors will work with clients to understand the breadth of their financial and other assets and develop tailored financial solutions to meet their needs. Financial advisors may provide specialized services, such as investment management, income tax preparation and/or estate planning. Most financial advisors aim to attain the Chartered Financial Analyst (CFA) designation, which measures competence and integrity and is very difficult and grueling to achieve.

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