This is especially important for the UK, which has the largest most internationally active and most complex financial sector in the EU. We are host to more foreign institutions than any other member state. As the Bank of England Deputy Governor with specific responsibility for Financial Stability, I can say that it is crucial that the single market for financial services is supported by a framework of common prudential rules that are fit for purpose and that are consistently applied. This is intrinsic to the ability of the Bank to deliver financial stability in the UK. The importance of this has been very powerfully and painfully underscored by the experience of recent years. Of course, this is true internationally, outside of the EU as well as inside. One of the clear lessons of the crisis is that we did not have strong enough global standards on prudential regulation to support the integration that had taken place in international capital markets and financial services. It is not my subject for today, but there has been a sea change since the crisis with a massive international reform programme to develop and implement prudential standards and regulatory co-operation. At the same time, however, we must not forget that while there can be very material spillover costs to other countries when things go badly wrong, the buck at the very end stops at the national level. We have strengthened the resilience of the financial system.
The rationale for this was brutally underlined in the euro crisis. The members of the euro share more than a single market. They share a currency, they share risk of the break up of that currency and they share a lender of last resort. With the creation of the European Stability Mechanism, they have begun to share a common backstop. At that level of integration, it is right to ask to what extent financial stability is ultimately primarily a national responsibility and where the buck should stop. The creation and full implementation of the Banking Union should in my view increase the financial stability of the currency union, thereby improving stability for everyone in the EU. It is, however, impossible to ignore the fact that to do so, the Banking Union must continue to develop the necessary backstops – painful though that may sometimes be. There are agreed plans to move further in this direction. It is important that they are implemented. To return to the history for a moment, one sees the need to find a balance between the single market and financial stability in the way in which Europe ultimately came to free movement of capital, with strong Treaty prohibitions on restrictions but within that – and within constraints – a recognition of the need for member states to be able to take the necessary action to defend stability including in relation to prudential supervision.