Local Bank Runs In The Red Ponzi—-A Contagion Waiting To Happen

A bank run at a small local institution in the southwestern Chinese city of Zigong could be a sign of an impending financial crisis. Shareholders of Bank of Zigong in Sichuan Province absconded with 40 billion yuan ($5.78 billion), through loans issued to shell companies that they had created, according to a Nov. 2 post in a Chinese social-media account, and a report by Da Zhong, a state-run news website. The loans were long overdue, resulting in huge losses for the bank.

The news spread quickly, even though the post was deleted within 20 minutes by internet censors. Scores of bank customers rushed to dozens of bank branches in Zigong City to retrieve their deposits, while long lines of people could be seen from photos of the scene and uploaded by netizens.