What is the 3-6-3 rule?
The “3-6-3 rule” is a colloquial summary of how many people remember commercial banking in the mid‑20th century: pay depositors roughly 3% interest, lend that money at about 6%, and be finished with the workday by 3 p.m. It captures an era when interest rates and banking activities were relatively stable, rates were often administratively constrained, and competition among banks was limited.
Key definitions
– Net interest rate spread (or net interest margin): the difference between what a bank earns on interest‑producing assets (loans, securities) and what it pays on interest‑bearing liabilities (deposits). It is a primary source of traditional bank profit, but it does not include operating costs, loan losses, or fee income.
– Retail banking: services aimed at individual consumers (checking/savings accounts, mortgages, personal loans, debit/credit cards, CDs).
– Investment management: managing pooled or institutional assets (pension funds, mutual funds) and sometimes providing access to capital markets products.
– Wealth management: customized financial planning and investment services for high‑net‑worth clients, often including tax and estate planning.
– Bankers’ hours: a folk expression indicating shorter bank opening hours than those of many other businesses (historically banks might open later and close earlier).
Why the phrase arose
After the Great Depression, U.S. banking was subject to stricter regulation. Those rules limited how banks could price deposits and loans and constrained the range of services they offered. With fewer ways to compete, banks’ profit models were simpler and interest margins were relatively predictable. That environment is what the 3‑6‑3 shorthand describes.
Why the 3-6-3 rule stopped describing reality
From the 1970s onward, two major forces changed banking:
1. Regulatory change and deregulation: rules that capped deposit or loan rates and restricted product offerings were relaxed or removed over time, enabling banks to compete more on price and expand services.
2. Technology and competition: information technology and new financial firms increased competition and enabled banks to offer many more products (fees, trading, asset management) and pricing structures (variable rates, tiered rates).
As a result, rates and margins became far more variable, non‑interest income grew in importance, and banks no longer relied on a simple deposit‑at‑x% / lend‑at‑y% pattern.
Simple worked numeric example
Assume a small bank takes in $100 million of deposits at an average rate of 3% and lends (or invests) the same $100 million at an average rate of 6%.
– Interest paid to depositors = $100,000,000 × 3% = $3,000,000 per year.
– Interest earned on loans/investments = $100,000,000 × 6% = $6,000,000 per year.
– Net interest income (simplified) = $6,000,000 − $3,000,000 = $3,000,000.
– Simple net interest spread = 6% − 3% = 3 percentage points; simple net interest margin (relative to assets) = $3,000,000 / $100,000,000 = 3%.
Important caveat: this example ignores operating expenses, loan losses (defaults), reserve requirements, fee income, taxes, and capital costs. Modern banks’ profitability depends on many more components.
Short checklist: how to tell if a banking environment resembles “3‑6‑3”
– Are interest rates administratively capped or highly regulated?
– Do banks offer only a narrow set of deposit and loan products?
– Do deposit and loan rates stay stable over long periods?
– Is non‑interest income (fees, trading, asset management) a minor part of bank revenue?
– Do banks face few competitors and low entry of new financial firms?
If you answer “yes” to most of these, the environment has 3‑6‑3 characteristics. Modern banking markets usually fail several of these tests.
Practical takeaway for students and retail readers
The 3‑6‑3 expression is a historical shorthand, not a business rule to apply today. It’s useful as a way to think about how regulation, competition, and technology shape banks’ business models. When analyzing banks now, focus on a wider set of metrics: net interest margin, fee and trading income share, efficiency ratio (operating expenses as a share of revenue), loan‑loss provisions, and capital ratios.
Selected reputable sources
– Investopedia — 3‑6‑3 Rule: https://www.investopedia.com/terms/1/3_6_3_rule.asp
– Federal Reserve History — Depository Institutions Deregulation and Monetary Control Act (DIDMCA): https://www.federalreservehistory.org/essays/didmca
– Federal Deposit Insurance Corporation (FDIC) — How banks work / consumer resources: https://www.fdic.gov/resources/consumers/
Educational disclaimer
This explanation is for educational purposes only and is not individualized investment, regulatory, or legal advice. Always consult qualified professionals before making financial decisions.