In the mid-20th century, the banking sector operated under a markedly different paradigm than we observe today. This era, spanning the 1950s through the 1970s, is often humorously encapsulated in the colloquial term "3-6-3 rule." This term provides a whimsical yet insightful glimpse into the banking practices of the time, shaped significantly by the prevailing regulatory and economic environment.

The essence of the 3-6-3 rule banking lies in its simplicity and reflects a routine yet unspoken business model among bankers. It suggests that a typical banker's day involved offering a 3% interest rate to depositors, lending out these funds at a 6% interest rate, and then comfortably wrapping up their workday in time for a leisurely round of golf by 3 p.m. This anecdote, though lighthearted, hints at a broader context of banking operations during this period, characterized by a lack of competitiveness and a straightforward approach to banking activities.

How Did 3-6-3 Rule Banking Work?

Borrowing at a low and lending at a high yield accounted for much of a bank’s income during these years. The net interest rate spread was important to the bank’s profits. Economically, the situation following the great depression warranted harsh rules for the banking sector. The rules addressed various problems, including high levels of corruption and lack of supervision that characterized the industry before the Great Depression. These rules also regulated interest rates at which the banks could lend and borrow and thus limited competition in the economy and the range of services that the banks could provide for customers. As a result, the banking sector was commonly viewed as stagnant and lacking in innovation during that period.

Despite that, the whole banking environment went through major changes towards the end of the seventies era. This change was driven by two key factors: deregulation, e-banking and IT. The relaxation of regulatory barriers resulted in increased competition amongst banks, which led to service diversifications as well as fierce competition in business style. The proliferation of information technology further revolutionized banking operations, facilitating a range of services that extended far beyond the traditional realms of deposit and loan management. Banks began to venture into areas such as retail and commercial banking, investment management, and wealth management, thereby vastly expanding the scope and complexity of their operations.

Types of Banking

In the diverse banking world, various services cater to different market segments, each with its unique set of offerings and client focuses. Understanding these services and the 3-6-3 rule example offers insight into the multifaceted nature of modern banking.

Retail Banking

Retail banking, often regarded as the face of personal banking, serves individual customers through extensive networks of local branches that are part of larger commercial banks. These branches provide essential financial services that are foundational to everyday financial management. Among these services are savings and checking accounts, which offer safe and convenient ways for individuals to manage their day-to-day finances. In addition to these, retail banks also extend mortgages, assisting clients in the significant life event of purchasing a home. Personal loans are another key offering, providing financial assistance for various individual needs such as education, home renovation, or debt consolidation.

Moreover, retail banks issue debit and credit cards, facilitating electronic transactions and providing credit facilities. Another noteworthy service is the provision of certificates of deposit (CDs), which are investment instruments that typically offer a higher interest rate than traditional savings accounts in exchange for the depositor agreeing to leave a lump sum of money untouched for a predetermined period.

Investment Management

On the other hand, investment management services delve into asset and fund management for individual and institutional clients. Banks offering these services often manage large-scale collective investments, such as pension funds, which play a crucial role in retirement planning for numerous individuals. They also oversee the assets of individual customers, tailoring investment strategies to meet specific financial goals and risk tolerances.

These banks can provide access to a broad spectrum of traditional and alternative investment products for collective assets. These products might include exclusive opportunities like initial public offerings (IPOs) and investments in hedge funds, which are often beyond the reach of the average retail investor due to their complex nature and higher entry thresholds.

Wealth Management

Wealth management services cater predominantly to high-net-worth and ultra-high-net-worth individuals. These services are comprehensive and highly personalized, designed to address affluent clients' complex financial needs and goals. Financial advisors in wealth management engage closely with clients to devise bespoke financial strategies. These strategies encompass investment management and span areas like income tax preparation and estate planning, ensuring a holistic approach to wealth preservation and growth.

Financial advisors in this field often strive to earn the Chartered Financial Analyst (CFA) designation. This prestigious certification is a testament to their expertise, commitment, and integrity in investment management. Attaining the CFA designation involves rigorous study and examinations, and it signifies a high level of competence in financial analysis, portfolio management, and ethical standards.

Each of these banking services plays a distinct yet interconnected role in the financial ecosystem, catering to the varied needs of individuals and institutions alike. From the fundamental banking operations in retail services to the intricate and specialized solutions in investment and wealth management, the banking sector continues to evolve, offering a comprehensive suite of services to its diverse clientele.

The Bottom Line

The 3-6-3 rule of banking encapsulates this period, where the primary business was straightforward: accept deposits, lend those funds at a higher rate, and enjoy stable, albeit modest, profits.

However, this quaint depiction belies the significant changes on the horizon. With the eventual relaxation of regulations and the advent of technological advancements, the banking sector transformed, leaving the days of the 3-6-3 rule in the annals of financial history. Today, banks operate in a highly competitive, multifaceted environment, far removed from the simplicity suggested by this nostalgic term.