I attended a financial seminar at a luncheon this week with a group of bankers and finance professionals representing a variety of companies in the Bay Area. The topic was "Rethinking Credit" – an analysis of the role of credit risk in the current economic crisis.
At the seminar, I heard all about banking regulation, capital requirements, credit default swaps, securitization, and leverage. Geeky…but insightful stuff.
There was a lot of talk about how simple banking used to be – how in the old days, banks simply took deposits, gave loans, and were safely limited by regulation. It was so staid that there was an unofficial policy in banking called the 3-6-3 rule. According to Investopedia:
depositors' accounts, lend the depositors money at 6 percent interest, and then
be playing golf at 3 p.m.
This boring banking industry transformed over the course of a few decades into the complex mixture of financial instruments, leveraged risk models and unregulated madness that helped bring down the economy and made daily headlines for the past year.
Do you think that it's possible to get the "genie back in the bottle" and return banking to the conservative old 3-6-3 days? Would a return to traditional banking be a good or bad thing for our economy?
Emily Peters – Credit.com's personal finance expert and former TransUnion credit bureau insider, Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.
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The banking industry still in fact does do 3-6-3 You make the mistake like everyone else of believing that ALL bank lending has to be financed by in branch deposits. It doesn’t.
The entire problem of the credit crunch was political manipulation of interest rates to keep them artificially low to create a feel good housing bubble. The free market if left to do its job is the best regulator there is.