Yichuan Rural Commercial Bank, a lender operating in the central Henan province, has become the latest Chinese bank to be bailed out by the government this year. The small financial institution, which has around 30 branches only in the Yichuan county, experienced a bank run sparked by rumors that its top management was in trouble with the law and mounting speculations the bank was on the brink of insolvency.
Bank Run Highlights Increasing Depositor Anxiety
Hundreds of depositors gathered at Yichuan Bank’s offices this week to retrieve their savings before the feared collapse and found they were unable to withdraw their money. Meanwhile, authorities confirmed on Wednesday they are investigating the former chairman of the bank and its biggest stakeholder, Kang Fengli, for suspected corruption, Reuters reported. Police also arrested a woman, a local resident, for allegedly spreading false information about the bank’s financial state.
In an effort to avoid the bank run, the lender issued a notice assuring depositors of its financial health. The bank also urged them to ignore the rumors and tried to dissuade them from withdrawing their funds. Security at bank branches was heightened. Bank employees stacked wads of large denomination yuan bills before clients’ eyes and reporters’ cameras to calm the situation and prove Yichuan had enough cash to continue to operate normally.
Despite the small size of Yichuan Rural Commercial Bank, the commotion around the events did not go unnoticed by financial authorities on the regional and national level. The increasing depositor anxiety, exacerbated by the noticeable economic slowdown in the country and the brewing liquidity crisis in China’s banking sector,