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Entry from February 15, 2011
3-6-3 Rule

The “3-6-3” rule or formula in banking meant that a bank gives 3% interest on accounts, charges 6% interest on loans, and the banker is to be found on the golf course by 3 p.m. The unofficial rule might have been true in the 1950s through the early 1980s, but the 3-6-3 formula was an old memory by the time of the savings and loan crisis in the late 1980s.

“3-6-3” has been cited in print since at least 1978; “2-6-3” was cited in print in 1982. Baseball scoring has a “3-6-3” double play (first baseman to shortstop and back to the first baseman), but it’s not known if the bankers who developed “3-6-3” were baseball fans as well as golfers.

Investopedia
What Does 3-6-3 Rule Mean?
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.

Wikipedia: Double play
In baseball, a double play (denoted on statistics sheets by DP) for a team or a fielder is the act of making two outs during the same continuous playing action. In baseball slang, making a double play is referred to as “turning two”.
(...)
The 3-6-3 double play occurs on a ground ball to the first baseman, who throws to the shortstop at second base before stepping on first. Thus, the shortstop can throw back to the first baseman, who is still able to get the force out at first.

Google Books
The Bankers Magazine
Volume 161
1978
Pg. 11:
“We’ll take your money at 3 percent, we’ll lend it back to you at 6, and we will be on the golf course by 3.”

Google News Archive
19 May 1982, Gadsden (AL)  Times, “Banker speaks to Lions Club” by George Butler, pg. 18, col. 2:
Only after the federal government reduces deficit spending can we expect interest rates to become stabilized.

So said Harry Brock, chairman and chief executive officer of Central bancshares of Alabama, the state’s largest bank with assets of over \$2 billion, in a talk Tuesday to the Gadsden Lions Club.
(...)
Brock said more changes had occurred in the past five years in the banking industry than in 40 years before. He described the old 2-6-3 formula that banks once enjoyed. “Take in money at 2 percent, loan it out at 6, and be on the golf course by 3.”

Google Books
Commercial Banking in an Era of Deregulation
By Emmanuel N. Roussakis
New York, NY: Praeger
1984
Pg. 161:
The increased vigilance necessitated by the general relaxation and gradual phaseout of Regulation Q ceilings has brought an end to the day when bankers could rely on the simple 3-6-3 management concept. Pay 3 percent interest on time deposits, lend them out at 6 percent, and adjourn to the golf course at 3 pm.

Time magazine
Banking Takes a Beating
By William Blaylock;Christopher Redman;Adam Zagorin;Stephen Koepp Monday, Dec. 03, 1984
The money industry comes under attack from customers, rivals and regulators

American bankers for decades operated by the 3-6-3 rule: pay depositors 3% interest, lend money at 6% and tee off at the golf course by 3 p.m. They could afford to be that precise because federal and state laws set the strict rules by which they operated and protected them from competitors. As a result, the power and prestige of bankers remained as secure as their vaults, while profits were steady and certain.

Suddenly, all that is gone. Bankers now face their most strenuous survival test since the Great Depression.

Google Books
The Bankers’ Handbook
By William Hubert Baughn, Thomas I. Storrs and Charls E. Walker
Homewood, IL: Dow Jones-Irwin
1988
Pg. 126:
The old 3-6-3 logic of borrowing at 3 percent, lending it out at 6 percent, and being on the golf course by 3 pm is just as outdated.

Google Books
Inside Job:
The looting of America’s savings and loans

By Stephen Pizzo, Mary Fricker and Paul Muolo
New York, NY: McGraw-Hill
1989
Pg. 10:
Insiders called those days the 3-6-3 days, when savings and loan executives borrowed (from depositors) at 3 percent, loaned (to home buyers) at 6 percent, and were in a golf cart by 3 p.m.

Federal Reserve Bank of Richmond
Economic Quarterly
Winter 2006
The 3-6-3 Rule: An Urban Myth?
John R. Walter
Our Research Focus: Financial Markets and Institutions, Financial Regulation
Topics: Financial Regulation, Financial Institutions, Financial Legislation
The banking industry of the 1950s, 1960s, and 1970s is often described as operating according to a 3-6-3 rule: Bankers gathered deposits at 3 percent, lent them at 6 percent, and were on the golf course by 3 o’clock in the afternoon. The implication was that the banking industry was less competitive during those years than in the period following, mostly because of the tight regulations that were loosened only in the 1980s. These regulations included limits on the formation of new banks and their location, and restrictions on the interest rates they could pay depositors and borrowers. There is a significant body of evidence supporting this view. Still, the regulations in place during those decades were often not binding or were, in some cases, sidestepped by banks and their nonbank competitors. Consequently, the competitive effect may have been less far-reaching than is often assumed.

Counterpunch
May 5, 2010
Bring Back the 3-6-3 Rule
How to Put Bankers Back on the Golf Course, Where They’ll Do Less Harm

By RUSSELL MOKHIBER
It used to be that your friendly local banker would abide by the three, six, three rule.

The banker would borrow money at three percent, loan it out at six percent, and be at the golf course by three in the afternoon.

William Quirk is a Professor at the University of South Carolina School of Law.

Quirk says – bring back three six three.

“I would put them back on the golf course at three p.m. – where they are not going to be doing that much harm,” Quirk told Corporate Crime Reporter in an interview.

Posted by Barry Popik
New York CityBanking/Finance/Insurance • Tuesday, February 15, 2011 • Permalink

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