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Chinese Bank Suffers 'Rare' Bank Run, Police Arrest "Rumor-Spreaders"

Published: August 13, 2017
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Source: Zero Hedge

Chinese police questioned 27 people, detained 12 and "severely" reprimanded 15, over the spreading of gossip about Linshang Bank - a lender with 61 billion yuan ($9.1 billion) in deposits - which caused a rare bank run in Eastern China.

The South China Morning Post reports that a few disgruntled employees at Shandong Sanwei Oil Group, an agricultural processing company, were unhappy after they were placed on leave when production lines were closed at the firm.

 
 

The employees spread a rumour that the firm was collapsing with billions of yuan in unpaid loans and that it might also bring down Linshang Bank, the report added.

 

The rumour spread quickly among residents, triggering a run on the local branch of the bank, according to the article. At one point more than 500 depositors gathered outside the branch demanding to withdraw their money.

The bank said in a brief statement on its website that the spate of withdrawals at one of its branches in Linyi in Shandong province on Monday was caused by “a few individuals spreading rumours” that the bank was in trouble.

The lender urged the public “not to believe in or spread rumours to jointly maintain good financial order”.

 
 

"In the face of rumors, we hope the public reacts rationally, does not believe in rumors, does not rumor-monger, to avoid harming their own interests."

 An official in the bank’s general affairs office told the South China Morning Post on Thursday the situation was now back to normal. A clerk at the bank’s Bancheng branch also said normal operations had resumed.

 
 

“Our branch managers have been explaining to our clients ... and most clients left the branch without withdrawing money after they knew it was just untrue gossip,” the clerk said.

As SCMP notes, regional banks in less developed areas are regarded as the weak links in China’s financial system as lenders often give large loans to local enterprises and may expose themselves to greater risks if local economic growth slows.

A rumour that a rural lender in Sheyang county in Jiangsu province had run out of money three years ago triggered a three-day run on the bank, which forced it to place stacks of cash behind teller windows to ease depositors’ panic.

While bank runs in China are unusual, the rapidity of this run (from gossip to deposit demands) makes us wonder just how fragile confidence must be among the average Jao. As a reminder, China’s central bank launched a deposit insurance system in May 2015, adopting Western-style protection for depositors. The maximum payout level is set at 500,000 yuan per depositor for each bank.

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