A series of bank runs has prompted the Chinese government to begin requiring approval for large cash deposits and withdrawals at
commercial banks, starting with banks in a northern province. Recently,
two bank runs happened within a week as people lost faith in financial
institutions amid unprecedented economic contraction.
China’s Efforts to Prevent Bank Runs
China
has launched a measure aimed at curbing bank runs. Starting July 1,
residents of the northern province of Hebei are required to “apply for
approval if they plan to make large cash deposits or withdrawals at
commercial banks,” the South China Morning Post reported Sunday. The
publication detailed:
The regulation comes after a
series of bank runs in the past year at debt-laden small lenders and as
an unprecedented pandemic-related economic contraction starts to take a
toll.
Residents “will need to provide information
about the source of deposits or the purpose of withdrawals for
transactions over 100,000 yuan (US$14,162) for individuals, and 500,000
yuan for corporations,” the state-backed China Securities Journal
described. “Applicants will have to give one day’s notice to the bank to
make a withdrawal of this size or larger, and gain the branch’s
approval of the registration information.”
This requirement will
be expanded to banks in Zhejiang province and the city of Shenzhen in
Guangdong province from October 1 for individual account transactions of
more than 300,000 yuan and 200,000 yuan, respectively.
The
regulation requires “every commercial bank to integrate their
information systems to minimise the amount of reporting required by
individual customers,” the Journal noted, claiming that this regulation
primarily targets “transactions conducted with physical cash through
quick, self-service deposit and withdrawal equipment that avoided
monitoring.”
Many small lenders in China are facing problems such
as rising number of non-performing loans, insufficient capital, and poor
governance. Last month, runs on two small lenders happened within a
week. The news outlet reported that customers mass-withdrew their money
from Baoding in Hebei province and Yangquan in Shanxi province over
concerns about the health of the banks. While China guarantees deposits
of up to 500,000 yuan per bank, the publication conveyed that
investments in wealth management products are not protected.
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