FOR three days in September 2007, queues formed outside branches of Northern Rock in the first run on a UK high street bank since Overend Gurney in the 1860s.

The writing was on the wall for the former building society from the moment the markets turned sour on August 9.

Its business model relied on it being able to borrow money from other banks and investors, and that was no longer possible in the panic-stricken conditions of August 2007, when none of the banks trusted each other.

It was the start of the credit crunch in Europe and by the end of the next two years whole economies had to be bailed out, banks collapsed, millions of savers lost their money and thousands of workers were made redundant.

In Scotland alone, the country lost its two main independent High Street banks, the centuries-old RBS and Bank of Scotland, while the largest building society, the Dunfermline, also collapsed.

The first hint of a crisis was on August 9 when the French bank BNP Paribas announced it was freezing the assets of hedge funds that were heavily exposed to the US sub-prime mortgage market.

The Bank of England then intervened to help bail out Northern Rock which was intended to be a calming influence.

But savers took to the internet to try to withdraw their cash and queued round street corners to get their hands on their savings.

Northern Rock had fewer than 80 branches, but the 24-hour news coverage meant the queues were broadcast on television scenes in living rooms around the UK and across the world.

A year later, the US government bailed out mortgage lenders Fannie Mae and Freddie Mac and also insurance giant AIG but then investment banking giant Lehman Brothers collapsed, triggering shockwaves through global markets.

In the UK, the government bailed out RBS and Lloyds Banking Group while Nationwide building society bought the profitable core business of Dunfermline, in a hasty fire sale that was sweetened with £1.6 billion from the taxpayer.

The human scale of the crisis can be seen in the number of jobs which have been lost.

RBS employed 226,400 people at the height of its success in 2007 but that number has fallen to just 82,500 today. The takeover of HBOS by Lloyds cost an immediate 40,000 jobs. Northern Rock operated a model what has been described as warehousing.

The old model of banking was based on taking in savings and lending them out in loans.

But this relied on banks being able to attract enough depositors to support their lending ambitions. Northern Rock used its mortgages to support its lending by bundling them up into bonds, which it then sold to the financial markets.

This worked as long as the international money markets wanted to buy the bonds.

Northern Rock had a 10 per cent share of the stock of UK mortgages but was gaining market share rapidly in the six months before it failed, advancing 20 per cent of new UK home loans.

Its warehousing model meant it had to sell bonds every three months – and the next sale was due in September 2007.

The Bank of England told Northern Rock it was prepared to act as lender of last resort but this did not emerge until 13 September, when the BBC reported that Threadneedle Street was operating behind the scenes to keep it afloat.

Since the run on Northern Rock, regulation and supervision of banks has been strengthened.

Crucially, the UK has now put in place a system to deal with failing banks, something that was not available in the summer and early autumn of 2007.

But those responsible for dealing with the crisis say there is little doubt about its lingering impact and the fact it can happen again.

A senior Bank of England official, Alex Brazier, has recently warned about banks dicing with a “spiral of complacency” in their consumer lending – when borrowing on credit cards, via unsecured loans and car loan schemes has topped the £200bn level for the first time since the crisis.

Alistair Darling, who had been chancellor for little more than a month when the markets froze in early August 2007 believes it could happen again.

He said: “Very few people would have thought, back in 2007, this will provoke an economic crisis that will still be under way 10 years later.

“When the present generation is gone, the people who were in shock, a bright spark will come along and say ‘I’ve found a great way of making money’ and there’ll be nobody to say ‘the last time we did that we went bust’.”