Traditional Risk Management in Banks followed the Hallowed 3-6-3 Rule

Traditionally, risk management in banks was simple. Banks' main risks were credit risks, and managing these boiled down to a few rules of thumb that bankers understood well: you lend conservatively, be careful who you lend to, build long-term relationships, and so on. The only quantitative rule that mattered was the hallowed 3-6-3 rule, the basis of banking: borrow at 3%, lend at 6%, and be on the golf course by 3 p.m.

The main source of market risk for the banks -- the risk of loss due to changes in market prices or rates -- was their exposure to changing interest rates. This had caused major problems in periods of high inflation and volatile monetary policy in the 1970s and 1980s, but banks had learned to handle this risk using stress tests and interest rate swaps.

--Kevin Dowd and Martin Hutchinson, Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System (Chichester, UK: John Wiley and Sons, 2010), 111.