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Economic Quarterly

Winter 2006

The 3-6-3 Rule: An Urban Myth?

John R. Walter

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.

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