China's bank run shows fragile trust
CHINA'S latest bank run is irrational, but worrying. Savers in coastal Jiangsu province have scrambled to pull cash from a small rural lender, even though the government has so far stood behind all deposits. It's a reminder that panic and rumours can quickly spread. The solution is to draw a clearer line between what's protected and what isn't.
China is one of the few big countries that does not offer explicit insurance to bank depositors - along with Saudi Arabia and South Africa. Until now, that hasn't mattered. Chinese banks are almost never allowed to fail, and the state ensures that savers can always access their cash. That makes the recent three-day panic in the eastern city of Yancheng all the more curious.
Following a rumour that a customer had been refused a withdrawal, hundreds of depositors rushed to Jiangsu Sheyang Rural Commercial Bank.
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