The Defence, Security and Resilience Bank is a lending institution established by some NATO countries and their allies. The bank’s development group president says it would create 3,500 jobs in defence finance if headquartered in Canada.Cole Burston/Reuters
Canada is in the running to headquarter a new multinational bank dedicated specifically to financing defence projects, a sea change for a sector that has traditionally been shunned by the country’s financial institutions.
The Defence, Security and Resilience Bank, or DSRB, is a multilateral lending institution being established by a collective of countries that includes NATO members and their Indo-Pacific allies.
If it were headquartered in Canada, it would bring about 3,500 jobs in defence finance to the country, along with the advantage of being the global hub for meetings of member countries, according to Kevin Reed, the president of the bank’s development group.
“This is Canada’s time to lead in NATO and with our allies in defence finance. Canada has the leadership – we’re known for our finance prudence – and we have the support of a lot of other nations if we choose to take the lead,” he said while testifying before the federal government’s standing committee on industry and technology on Nov. 5.
The blueprint for the DSRB was laid out last year by Rob Murray, the chief executive officer of the bank’s development group. Mr. Murray is also the founding architect of NATO’s Defence Innovation Accelerator for the North Atlantic, as well as its Innovation Fund.
Federal budget earmarks $6.6-billion to grow defence industry with focus on emerging tech
The DSRB, to be established by the end of 2026, will include as many as 40 member countries. Twelve will be anchor countries, tasked with ratifying and governing the bank’s founding charter and choosing the location of its headquarters. Those 12 are currently being finalized, and industry members, as well as members of the bank’s development group, are lobbying Ottawa to throw its hat into the ring.
Glenn Cowan, the founder and managing partner of defence-focused venture capital fund ONE9, says Canada missed out when it didn’t join the 24 NATO allies establishing the NATO Innovation Fund for defence, security and resilience. He sees this as a second chance.
“That was a huge missed opportunity. So the question I would pose rhetorically to anyone in the position to help decide this is, ‘Do you want to miss out on this again?’” he said.
Banks like this don’t come around too often. Most recently, the New Development Bank and Asian Infrastructure Bank were established in 2015 and 2016, respectively. Similar institutions such as the World Bank Group are set up to mobilize capital to address issues affecting multiple countries. In the case of the DSRB, that issue is an increasingly divided world in which countries all over the world are increasing their defence spending.
A handful of institutions, including Royal Bank of Canada, JPMorgan Chase & Co., ING Group NV, Commerzbank AG and Landesbank Baden-Württemberg, have already signed on to help establish the DSRB.
The DSRB will be owned by member countries, but financial institutions, including Royal Bank of Canada, have signed on to help establish it.Fred Lum/The Globe and Mail
The bank will be owned by its member countries, which will be asked to contribute in two ways: paid-in and callable capital. The former is an upfront contribution made when a country joins the bank, like a down payment. The latter is a promise to provide extra money if the bank is ever in a crisis – a factor that will help secure a AAA rating for the bank.
Any contributions made by NATO members should count toward their commitment to spend the equivalent of 5 per cent of GDP on defence.
Defence companies in Canada have come up against a wall of stigma in the past when seeking financing domestically, Mr. Reed told the industry committee. “Companies, just because they were in the defence category, were debanked,” he said, referring to the banking practice of terminating relations with a client based on perceived risk.
A lot of that stigma stems from environmental, social and governance standards that do not look favourably upon financial institutions lending to defence firms. This is changing, slowly, across banks, pension funds and insurance companies, Mr. Reed said, but there’s still a way to go before more credit and equity become available.
Opinion: Ottawa defence procurement risks being mired in bureaucratic mess
“We have to be able to finance our entrepreneurs, because if we don’t finance our entrepreneurs, we don’t build the capability,” he said.
The DSRB will work with national banks to co-finance countries and companies and indirectly, through guarantees, with commercial banks. This will make it easier for banks interested in lending to a defence company to offer more loans, at better rates, with less risk.
Drones, munitions, cyberinfrastructure, AI and other technologies with both civilian and military uses are among the projects the DSRB intends to finance.
If Canada were to win the bid for the DSRB’s headquarters, Sonya Shorey, the president and CEO of Invest Ottawa, is jockeying for her city to be the beneficiary. “Canada’s capital region brings together innovation, technology and national policy. Having the DSRB anchored here would integrate finance into that triad.”
Whoever lands the headquarters for the bank will have a home court advantage in terms of securing financing for their domestic defence industries, Ms. Shorey said.