Canada and Luxembourg Propose NATO Defence Bank

Canadian Prime Minister Mark Carney and Luxembourg Prime Minister Luc Frieden are calling on NATO member states to establish a new international Defence, Security and Resilience Bank (DSRB). The new institution would direct private sector capital into the defence industry and accelerate rearmament in Western countries. European NATO countries and Canada will need over 850 billion euros for additional weapons spending in the coming years.

Canadian Prime Minister Mark Carney and Luxembourg Prime Minister Luc Frieden published a joint article in the Financial Times calling on NATO allies to establish a new international financial institution to finance the defence industry.

What is the DSRB?

The proposal from the two leaders envisions the establishment of a Defence, Security and Resilience Bank (DSRB), which would function similarly to the World Bank or the European Bank for Reconstruction and Development. The bank would provide loan guarantees and direct loans to both companies within the defence industry and to member states themselves.

Carney and Frieden highlight that member states would contribute to the bank through both direct payments and guarantees. The payments would ensure immediate liquidity for the bank, while state guarantees would secure a high credit rating, enabling the bank to attract additional capital from financial markets on favourable terms.

Why is such a bank needed?

Following Russia's full-scale invasion of Ukraine, NATO member states have significantly increased defence spending, but according to the prime ministers, this alone is insufficient. European NATO members and Canada will need over 850 billion euros in the coming years to strengthen defence capabilities without this coming at the expense of other public investments.

"Our proposed model would allow member states to pool capital while maintaining their fiscal space. This in turn would help attract private capital, reduce financing costs and offer long-term financing solutions at lower interest rates," Carney and Frieden write.

Loans for allies only

The bank's operational principle is clear: the DSRB would provide loans only to companies based in member states, including across the entire defence industry supply chain. Additionally, the bank could finance weapons production in sectors that many financial institutions currently do not support due to their principles.

Carney and Frieden emphasise that the credibility of deterrence depends not only on military capability but also on financial capacity. "We believe this could be another milestone in NATO partnership, opening a new era in transatlantic relations," they write.

Target: launch within 12 months

The prime ministers express hope that the DSRB can be launched within 12 months and call on all NATO allies to join the proposal. Founding members would be able to shape the bank's governance, operations and rules of procedure, giving early adopters an opportunity to significantly influence the bank's direction.