How a multibillion dollar defence bank could help Canada increase its military spending

National Post

11 hours ago

A new multilateral defence bank aims to help Canada and its allies build their militaries to meet looming threats in an increasingly hostile world while also giving Canadian industry a leg up when it comes to producing weaponry and military kit to tackle those threats head on.
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And its Canadian president is hoping it will have a major presence in Toronto.
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Announced this past spring, the new Defence, Security and Resilience Bank could solve financial problems for countries, including Canada, that are under pressure to increase military spending beyond two per cent of their gross domestic product (GDP). Some estimates peg the more likely target as five per cent of GDP as Russia and China grow increasingly belligerent on the world stage.
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'We have to use our capital markets of allied nations for overwhelming force against our foes,' Kevin D. Reed, the new bank's president and chief operating officer, said in a recent interview.
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'Hopefully that acts as a form of deterrent against big conflicts.'
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The United Kingdom 'has emerged as the lead candidate to take this on,' according to Reed.
'That being said, we've … advocated to our Canadian government that there's a window here for Canada to take a co-leadership role with the U.K.'
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Reed would like to see a branch of the bank located in Toronto.
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If Canada chose to be the bank's host nation, or to co-host with London, 'you're probably looking at 2,500-3,500' banking jobs in Toronto, he said.
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The bank would be owned by member nations, including NATO and Indo-Pacific countries.
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'They would capitalize the bank, we would get a triple-A rating, and we would take it to the bond market to raise money,' Reed said.
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'If we have all 40 nations in, we would expect about $60 billion of equity into the bank over time, and then subject to the bond markets we would seek to raise $100 billion at first, taking that up to about $400-500 billion over time.'
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For countries that don't have a triple-A credit rating, it would mean a lower cost to capital, he said.
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It would also allow nations in immediate need of more defence dollars to tap the bank for money, rather than waiting for annual budget cycles.
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'The real driver in this is that it would provide credit guarantees to commercial banks to lend into the defence sector,' Reed said. 'Most commercial banks … unless you're a big prime (like Boeing), if you're a number two or three or four in the supply chain, you're almost unbankable, historically, because of ESG (an investing principle that prioritizes environmental and social issues, as well as corporate governance) and just a view of defence.'