Grizzly BullsELI5: The 3-6-3 Rule in Banking History
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3-6-3 Rule in Banking Explained
Imagine you are playing a fun game with your friends, and the rules are straightforward: you give them some toys, they play with them, and then they return the toys along with some candies as a reward. Well, the 3-6-3 Rule in banking is a bit like that – it's a simple rule that explains how banks used to operate, but don't worry, I'll explain it in easy terms using our toy game example!
💡 Key Ideas
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Simple Banking Rule: The 3-6-3 Rule was a simple guideline followed by banks in the past, where they borrowed money at 3% interest, lent it out at 6% interest, and kept the 3% difference as profit.
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Legacy: The rule offered a straightforward approach to banking, simplifying decision-making and risk assessment in the past.
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Present Banking: Modern banking has evolved to be more complex and diverse, with banks offering various services beyond lending and deposits, embracing technology, and following strict regulatory compliance.
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Continuous Adaptation: As the financial world continues to change, banks will keep learning new tricks and strategies to meet the diverse needs of customers in a rapidly evolving global economy.
The Toy Game Scenario
Let's pretend you are a little banker running a toy bank. Here's how the 3-6-3 rule works:
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3: You borrow money from people (like your friends) at 3% interest rate. They lend you $100 with the agreement that you'll pay them back later with some extra money as interest.
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6: Next, you lend the money you borrowed to other people (like your other friends) at 6% interest rate. They borrow $100 from you and agree to return it with some extra money as interest.
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3: Lastly, you earn money on the difference between the interest rates. You keep the 3% difference between the interest you pay to your friends and the interest you receive from your other friends.
Making Sense of the 3-6-3 Rule
Okay, let's break it down further:
Step 1: Borrowing Money
You start by borrowing $100 from your friends at a 3% interest rate. This means you'll pay them $3 as interest for using their money.
Step 2: Lending Money
Next, you lend the $100 you borrowed to other friends at a 6% interest rate. They will pay you $6 as interest for using your money.
Step 3: Keeping the Difference
Now comes the exciting part! You keep the 3% difference between the interest you paid to your friends and the interest you received from your other friends. In this case, it's $6 - $3 = $3.
Legacy and Impact on Present Banking
The 3-6-3 Rule was like a cool trick that banks used in the past to make money. It worked great back then, but things have changed a lot since those days. Let's see how this old rule has influenced present-day banking in a simple way!
Legacy of the 3-6-3 Rule
Once upon a time, the 3-6-3 Rule was the superstar of banking. It gave banks a super easy plan: borrow money from friends at 3%, lend it to other friends at 6%, and keep the 3% difference as their profit. It was like a magic spell for making money!
Impact on Present Banking
But as time went on, the banking world got more complicated. Banks faced new challenges and had to learn some fancy new moves. Nowadays, they do a lot more than just borrowing and lending money.
Here are some of the cool changes in present-day banking:
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All Kinds of Services: Banks now offer lots of different services, like helping people manage their money, offering insurance, and even helping with big financial deals.
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Super Safety Measures: Banks have become pros at managing risks. They use smart tricks to protect themselves from problems that might come their way.
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Hi-Tech Banking: Technology has worked its magic on banks too! Now, they have online banking, apps, and really clever ways to understand what people need.
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Friends All Over: Banks are like global friends now! They talk to banks in other countries and do business together to make the financial world work smoothly.
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Following Rules: Banks play by important rules to keep everything fair and secure for everyone. They have to follow some strict guidelines to make sure everything is in order.
The 3-6-3 Rule was a fun trick that banks used in the past to make money. But now, present-day banking is like a big magic show with all kinds of cool tricks and moves! Banks offer lots of services, use technology to make things easy, and follow important rules to keep everything safe and fair. As the world keeps changing, banks will keep learning new tricks to make your money journey even better!
Conclusion
The 3-6-3 Rule in banking was a simple concept where banks borrowed money at a lower interest rate, lent it out at a higher interest rate, and kept the difference as their profit. It's like running a toy bank game, where you borrow toys, lend them to others, and earn some candies as your reward. While it's not the primary rule for modern banking, it helps understand the basic idea of how banks used to operate to make money!