September 2007. Thousands of ordinary savers standing in queues that stretched around the block, waiting to pull their money out of Northern Rock. It was the first run on a British bank in over 140 years, and the images went around the world.
What actually happened
Northern Rock had built its business on borrowing from financial markets rather than relying on customer deposits. When those markets froze in the credit crunch, the bank could no longer fund itself and had to ask the Bank of England for emergency support. The moment that news broke, confidence evaporated. Depositors withdrew around £1 billion in a single day, and within months the bank was nationalised.
The uncomfortable truth
The people queuing outside those branches were not being irrational. They had understood something important: money in a bank is not really in the bank. It is lent out, invested and leveraged, and in a crisis you are simply one creditor among many. The government eventually guaranteed deposits to stop the panic, but only after the queues had formed.
What gold owners knew
Physical gold held in your own possession has no funding model, no wholesale markets and no counterparty. It cannot suffer a bank run because there is no bank involved. That is why demand for physical gold surged in the years after 2007, and why holding some wealth completely outside the banking system remains, for many people, the entire point.
Speak to us
This is information, not a sales pitch. If you would like to talk anything through, book a call with the team or phone 0208 064 0076, Monday to Saturday, 8:30am to 6:30pm. When you are ready, our range of tax-free UK gold coins is available to browse at any time.
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Sources
- BBC News, Northern Rock: the bank run that heralded the financial crisis
- Bank of England, financial stability and lender of last resort role
Gold Tier Advisory provides information on physical gold ownership. We do not provide regulated financial advice. The value of gold can go down as well as up.
