From the repeal of the Corn Laws onwards, the UK has acknowledged that impediments to free trade are seldom, if ever, “first best” responses to the many maladies from which market economies can suffer.4 Where the UK has led, others eventually followed. In time, every major advanced economy has come to embrace openness as a strategy to promote the well-being of its citizens. Today, the UK’s trade totals around two-thirds of its GDP (Chart 1). Its external assets and liabilities exceed ten times GDP. And its share of global Foreign Direct Investment (FDI) is around two times its share of global activity, accounting for the largest share of FDI into the EU (Chart 2). Its openness extends beyond the real economy to the financial economy. The scale, complexity and degree of global activity of the UK financial system are unmatched in the European Union (Chart 3). More foreign banks operate in the UK than any other EU country, and more than half of the world’s largest financial firms have their European headquarters in the UK. The UK has the largest global share of cross-border bank lending, foreign exchange trading, and OTC interest rate derivatives. It has the world’s third largest insurance industry and its second largest asset management industry. The UK banking sector is four times GDP and non-bank financial institutions are a similar size (Chart 4), while financial services accounted for 8% of output and around 3½% of employment in 2012.
4.2  Financial stability  The impact of EU membership on financial stability is more challenging. Given the close integration of the UK financial sector with the rest of the EU, it is imperative that the EU has a robust regulatory framework. This is in the process of being achieved. Through its membership of the EU, the UK is promoting a strong global regulatory framework, and UK authorities have worked in close concert with our European partners to find solutions to the fault-lines of the past. Examples include moves to end Too Big To Fail by enhancing bank recovery and resolution, a solution developed locally at the Bank of England, implemented regionally in the European Union, and now agreed globally through the Financial Stability Board. Given the scale of the UK’s financial sector relative to its economy, the Bank of England also has a special responsibility to the UK, to Europe and the world. The UK must ensure that the  11  See Broadbent, B (2011), “Rebalancing and the real exchange rate”, Speech at Thompson Reuters, London. BIS central bankers’ speeches  7  system is robust to shocks and that financial institutions can be resolved in an orderly manner. After all, financial stability is a national responsibility, with the UK taxpayer serving as the ultimate backstop of the UK financial system. The comprehensive reform of the UK’s institutional framework for financial stability since the crisis creates a coherent architecture of national macroprudential and microprudential regulators and supervisors.