(Yicai Global) Nov. 13 -- Rumors stampeded depositors into yanking their savings from two local small and mid-sized banks in North China late last month and early this month over a span of a scant two weeks.

Two suspected rumormongers have been detained and the banks' operations have returned to normal, the China Banking and Insurance Regulatory Commission announced at a press briefing called yesterday to clear the air and soothe public angst over the health of China's USD40 trillion banking sector, and above all its shakier smaller houses. Beijing's takeover of wobbling Baoshang Bank in July overturned a persistent belief the government stood ever ready by to cast a cash lifeline to floundering local lenders.

The telltale pair allegedly spread the claim that Yingkou Coastal Bank in Northeast China's Liaoning province was in financial straits, which precipitated the run on the bank, said Liu Rong, vice department chief of CBIRC's city commercial banking section, adding police have detained the suspects and the bank, which has been performing well based on business indexes, has resumed normal business.

"Yingkou Coastal Bank's operating indicators are sound. After the incident, I looked at the indicators in particular, especially the liquidity indicators, which were quite stable," he said.

Spawning Speculation

Authorities' earlier actions against the ex-chairman of Yichuan Rural Commercial Bank in China's east-central Henan province based on his personal legal violations also gave rise to subsequent rumors against the bank, which likewise impacted its operations, noted Ji Yanmei, deputy chief of CBIRC's rural bank department.

That bank has also returned to regular operations, according to Ji. She did not reveal whether any suspects have been arrested.

The country must enhance its management of liquidity in small and medium banks, and they must intensify their public opinion monitoring and improve their liquidity emergency response regimes, Liu advised in response to the two incidents.

China's banking sector controls risks and operates well overall, Xiao Yuanqi, CBIRC's chief risk officer and spokesman, told the presser, adding business and monitoring indexes all fall within a reasonable range, some of which are much better than regulatory requirements.

Editors: Tang Shihua, Ben Armour