jon cunliffe : financial stability, the single market and capital markets union speech by sir jon cunliffe, deputy governor for financial stability of the bank of england, at the city of london corporation and open europe conference, london, 20 january 2015. * * * the treaty of rome, signed in 1957, established the basic four freedoms of what has now become the european union – freedom of goods, services, people and capital. i want to talk a little today about the last of these and about the development of the single market in financial services – its history, how it has dealt with the twin objectives of stability and openness and its future development, particularly the capital markets union. the freedom of capital movement agreed in 1957 was for many years only an aspiration. in that post war world, free movement of capital must have seemed a dream. to many, with not so distant memories of the inter war years, of the collapse of an earlier period of financial globalisation and with continuous strain on the balance of payments, it might have seemed a bad dream. the risks to economic and financial stability may well have seemed too great to allow open capital markets. open capital markets have, through history tossed and turned between being seen as an opportunity for additional trade and growth, and a potentially destabilising force. the path to open capital markets in europe was slow – as it was in the rest of the world. it was not fully completed until the maastricht treaty of 1992 when free movement of capital became a directly applicable treaty right. and throughout this process, in recognition of the potentially destablising effect, safeguards were included to allow member states to defend their stability, including in relation to prudential supervision. the real push for free movement of capital came in the mid 80 ’ s when european growth was sluggish, especially compared to the us and japan. there was a search for policies to generate economic dynamism, which led to the birth of the single market. but, of course, until capital could flow freely between member states it was not really possible to have a single market in financial services or, in the financial sector, to give effect to that other founding freedom – the freedom to provide services across the eu. the liberalisation of capital markets in the eu was rooted in two beliefs. first and foremost that open capital markets, cross border investment and cross border financial services would create a more efficient allocation of capital through better intermediation

five in prudential regulation authority ( 2020 ), consultation paper 9 / 20 : non - systemic uk banks : the prudential regulation authority ’ s approach to new and growing banks – https : / / www. bankofengland. co. uk / prudential - regulation / publication / 2020 / new - and - growing - banks see https : / / www. gov. uk / government / publications / ring - fencing - information / ring - fencing - information under the financial services and markets act 2000 ( as amended ), the pra has two primary objectives : i ) a general objective, to promote the safety and soundness of the firms we regulate ; and ii ) an objective specific to our regulation of insurers, to contribute to the securing of an appropriate degree of protection for those who are or may become policyholders. the pra ’ s secondary objective is to act, so far as is reasonably possible, in a way that facilitates effective competition in the markets for services provided by the firms we regulate when they carry on regulated activities. see prudential regulation authority ( 2018 ), the pra ’ s approach to banking supervision, ( october ) see https : / / www. bankofengland. co. uk / prudential - regulation / new - bank - start - up - unit. the approach to setting up a new bank has been broken down into different stages to help lower the barriers to entry. this includes early engagement with the regulator in the ‘ preapplication stage ’ and a ‘ mobilisation ’ stage where a bank authorised with restrictions is subject to less onerous requirements than a mature bank, allowing it time to secure further investment and build its capabilities before it becomes a fully functioning bank. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice the year to end march 2020 alone. 5 there remains healthy interest in becoming a bank too, including more than 20 potential uk start up banks in the pipeline. and last year 10 % of new lending by banks to businesses was attributable to the non – big six banks, compared to just 4 % on average in the period 2012 - 2018. that ’ s quite a shift in a relatively short space of time. but as our deputy governor for prudential regulation sam woods set out last year, although we have been pretty successful in encouraging new entrants, it is so far