By Jason Subler and Xiaowen Bi
BEIJING (Reuters) - China's biggest bank was uncertain of how to respond to turmoil in money markets last week because there was no clear direction from policymakers on what they wanted to achieve, according to its top executive.
Jiang Jianqing, Chairman of Industrial and Commercial Bank of China Ltd (ICBC) , stopped short of directly criticizing regulators for their handling of the stand-off over money market liquidity, which saw overnight borrowing rates soar and caused panic at some smaller banks.
But Jiang's comments are the clearest indication yet of frustration among senior bankers over how the central bank handled the situation, with markets only calming down after the People's Bank of China (PBOC) made public comments this week.
"We hope that in future, policy expectations can be clearer. That would be help us understand the overall market situation better and more deeply. Those few days, even for us, we were genuinely a bit tense," Jiang told Reuters in his wood-paneled office in downtown Beijing on Tuesday.
Jiang said ICBC's own liquidity situation was sound and that it was prepared to heed the call by the PBOC for big banks to lend to their smaller counterparts should they face short-term cash crunches to help stabilize the market.
But in order to play that role, he said, ICBC -- the world's biggest commercial bank by market value -- and other big banks needed a clearer sign of where things were headed.
He described a harried few days in the past week, when ICBC and other banks tried to assess what was happening in money markets as the central bank apparently decided to use the opportunity of a cash crunch to try to choke off funds flowing to speculative activities and the informal lending sector, sending rates to levels normally only seen during crises.
"We too needed a few days to finally become clear on the risks, and to understand the underlying reasons for the market movements," he said
"So during that process we too were a bit nervous. If we're going to be of help, we also need policy expectations to be even clearer and more stable," Jiang said, adding the market-wide situation was now improving.
Jiang said the market squeeze, which was followed by a brief interruption in ATM use and some other services at ICBC and other banks over the weekend that rattled some savers' nerves, had driven home the idea that banks need to respond quickly to potential crises of confidence, especially in the age of social media.
At one point last week, rumors spread on China's Twitter-like service Weibo that ICBC had received a cash injection from the PBOC, which the bank denied. ICBC also issued a statement this week saying the issue with the ATMs was a technical glitch that had been fixed.
The money market crunch had subsided somewhat by Wednesday, aided by the central bank saying on Tuesday that it had provided emergency cash to some banks and was prepared to do so in future as well. But it also reiterated banks needed to improve their cash management and lending practices.
The key rate for week-long lending to other banks fell back towards 7 percent, after some individual quotes late last week went as high as 28 percent.
Economists expect conditions to ease further in the next week or two as some of the underlying factors behind the initial cash crunch -- including quarterly tax and dividend payments -- pass.
Overall, the recent scare had been a good lesson for banks that they needed to be on better guard against possible financial risks as they expanded credit, Jiang said.
"This situation has pointed out to us banks that we might need to make some changes, make some adjustments to our balance sheets so that there's a better match between liquidity, security and return," he said.
"We can't stretch ourselves too thin for profits."
(Additional reporting by Xie Heng; Editing by John Mair)