June 25, 2017

Run On China Bank Gives Consumers Food For Thought

When The Rumors Aren’t True

Keeping close tabs on our money is an American fact of life. In general, we like to be able to deposit what we have in what we believe to be a secure holding institution and then relax.

three-day-run-china-bank

Customers getting money out of the Jiangsu Sheyang Rural Commercial Bank

But what happens when an alarm is sounded and there is the possibility that we relaxed too soon? How do we react when there is even a hint that our particular financial institution could be in trouble and that our share of the money being held could be in jeopardy?

Fortunately, the United States has built safeguards into its banking systems, including federal deposit insurance, and the likelihood of a “run” today is miniscule. But a recent story out of China shows what can happen when rumors run rampant and cool heads do not prevail.

How The China Bank Run Started

A customer in Yancheng, China, went to his bank and requested a withdrawal of 200,000 yuan, the equivalent of $32,200 in American dollars. The story goes (and the details have not been clearly defined) that when the customer’s request couldn’t be immediately honored, he assumed that the bank had run out of money and panic ensued.

Panic Rampant

Soon, depositors arrived in droves, by any and all means of transportation. Though regulators and spokespersons for the central bank assured the bank’s clientele that their money was safe, the flood of customers demanding their full amount kept arriving. The beleaguered bank stacked piles of yuan on its counters to create the appearance of plenty, but even that ploy and the sight of armored cars bringing cash to aid the besieged institution didn’t immediately quell the tide of anxious customers. The run continued for three days.

Customers’ concerns were probably magnified by China’s failure to meet a domestic bond recently. The default was a first in the mega-country’s current financial history, but it lent itself to ongoing itchiness about all aspects of the country’s financial security.

Lessons From The Bank Run

There are many versions of what happened in Yancheng, but the lessons for Americans are the same.

The news of this story spread quickly. All it took was one customer who used a twitter like service to notify his circle of friends. From that point hundreds of people heard about the customer’s experience and soon it gained world wide attention. The Chinese people have a heritage of fearing for the safety of their money. Older generations of people experienced government confiscation of property and wealth. It is no wonder that panic resulted.

So what is the lesson American people can gain from this? When rumors start, don’t panic. Check other sources for the truth to the rumor. Give yourself some time to make the best decision for you and your family. Though time would be of the essence in a real bank failure, it is foolish to over-react.

The bottom line is to look before you leap. Trust in the safeguards that have been built around the country’s financial practices. Certainly you are justified in making immediate inquiries if there is a suggestion that something is wrong, but don’t just assume that the rumors are true. Often, they are not.

About Twila Van Leer

Journalist/writer for more than 50 years. Pulitzer Prize nominee, 1983 for coverage of the first permanent artificial heart. More than 50 national, regional, local awards for news writing. Main writer for a memorial book for Deseret News' 150 th anniversary and for a book recounting the 1997 re-enactment of the pioneer trek from Omaha to Salt Lake City. Co-writer and editor of "True Valor," a book on the history of the artificial heart. Author of the book, Life Is Just A Bowl Of Kumquats, a wonderful story of a house wife and her trials with raising a large family.