Photo by: European Union 2020

POLICY PERSPECTIVE

by Meriam Meddeb 

September 2026

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Table of Contents

• Introduction
• The Problem the DSRB Was Built to Solve
• What Hosting Confers, and What It Does Not
• Canada's Record and the Credibility Test
• Five Conditions for Strategic Success
• The Moment and Its Stakes
• About the Author
• Canadian Global Affairs Institute

Introduction

In April 2026, following charter negotiations in Montréal, nineteen founding member nations unanimously selected Canada as the host country for the Defence, Security and Resilience Bank (DSRB), a proposed multilateral institution designed to finance the defence industrial base that environmental, social and governance (ESG) cautious private capital had largely abandoned. The decision was a diplomatic achievement. Whether it becomes a strategic success depends on what follows.

Three months later, at the NATO summit in Ankara, nine governments signed a declaration of shared intent to establish the bank: Canada, Albania, Belgium, Greece, Latvia, Luxembourg, Romania, Türkiye and Ukraine. Canada's lead negotiator had targeted roughly ten founding members and described the summit as a self-imposed deadline for naming them. The gap between the nineteen governments at the negotiating table and nine prepared to sign has been read too quickly in both directions. It is not evidence that half the coalition walked away, since only Luxembourg had publicly committed before the summit at all. Nor is it the unqualified success the announcement implied. Public commitment is emerging more slowly than Ottawa's timetable assumed: ten of the nineteen negotiating governments still have not publicly backed an institution whose charter they helped write.

Hosting the DSRB confers position but not yet influence. Canada's return on the arrangement depends on five conditions that it has not yet met: confirming that member equity contributions count toward NATO defence spending targets; building the international momentum needed to bring allies and partners with real weight into the bank; holding the proposed interoperability lending condition against industrial pressure; operationalising a dual-track position alongside the European Union's Security Action for Europe (SAFE) instrument; and building sufficient durability to survive a change of government. These conditions are not of equal standing. The first is binding, since failure to secure it removes the principal financial incentive for other allies to capitalise the bank. The second, third and fourth are contested but recoverable. The fifth conditions the rest, because none of the first four will be settled within the current parliament. 

The sections that follow trace that argument in order: the financing gap the DSRB was built to close, what hosting has secured and left unsettled, and Canada's own spending record, measured against the credibility the role now demands. From there, five conditions set the standard against which Canada's claim to defence-financing leadership should be assessed.

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The Problem the DSRB Was Built to Solve

For much of the past decade, NATO pressed its members to spend more on defence, restating the two per cent of GDP benchmark at successive summits, and most eventually did. That effort met a constraint the summit communiqués had not anticipated: private capital did not follow. The sequence is frequently reported backwards, since lenders did not withdraw in response to rearmament. Institutional investors and commercial lenders across allied states had already built ESG screening frameworks that treated defence manufacturing as a category to avoid, reducing their exposure well before Russia's full-scale invasion of Ukraine in 2022. The financing gap, in other words, predated the war. What changed after 2022 was its significance: as governments committed to historic increases in tank, drone and ammunition production, limited access to private financing became a growing constraint on how quickly defence output could scale.

The bank’s case rests on a second constraint that receives less attention: the cost of borrowing across the alliance. Roughly 70 per cent of NATO members borrow at higher rates than AAA-rated states such as Germany. The DSRB is designed to pool allied credit strength, allowing those members to access financing on terms closer to those available to the alliance’s strongest balance sheets. This also helps explain Germany’s position. A country that already borrows at Europe’s lowest rates has little to gain from mutualising credit quality, which is why Berlin, along with London, indicated well before Ankara that it would not back the institution.

Canada’s six largest banks illustrate the same financing constraint at a smaller scale. They had largely kept their distance from defence lending, reflecting a combination of ESG concerns and conventional political-risk aversion. By February 2026, however, all six had confirmed support for the DSRB. The ESG constraint had not disappeared; it had simply been routed around.

The institution designed around that model is, formally, a treaty-based multilateral bank: publicly owned by its member states, permitted to finance defence production, and intended to raise up to £100 billion, approximately US$133 billion, in low-cost finance. The DSRB resembles a multilateral development bank such as the World Bank more than a conventional commercial lender: it directs its lending toward munitions production and toward small and medium-sized enterprises (SMEs) that struggle to secure conventional credit. At the centre of the model is an intended AAA rating. This is a design assumption, not an assigned rating, intended to reduce perceived risk enough for private capital to return to defence lending through a structure that compliance departments can accept.

One implication has received little attention in Canada. Canadian institutional capital was not as constrained by defence-sector exclusions as Germany’s, so Canada is not hosting the DSRB because it faced the financing problem the bank was designed to solve. One could argue, it is hosting an institution built primarily to address a European problem. That makes the DSRB a longer-term strategic asset than a rotational military contribution, but it also places greater demands on Canada as host, because the bank’s value will depend on sustained institutional follow-through.

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What Hosting Confers, and What It Does Not

The April decision did not happen by chance. Isabelle Hudon, President and Chief Executive Officer of the Business Development Bank of Canada and Canada's lead negotiator, spent more than a year building the coalition behind the bid. The initiative also fits within Prime Minister Mark Carney's broader argument for an alliance of middle powers in response to the fragmentation of the United States-led order. Seen this way, the DSRB is not simply a financial project. It is a test of whether Canada’s stated foreign-policy ambitions can be translated into lasting institutions.

Canada hosts the institution. But its headquarters location remains undecided. Several cities are competing for a headquarters estimated to generate 3,500 direct jobs, and a federal decision has yet been announced. The more consequential uncertainty concerns disclosure. The nineteen governments that negotiated the Articles of Agreement were never publicly identified. As recently as June 2026, the Department of Finance declined to name them, saying negotiations were still underway and that the participants would be disclosed once the charter was finalised. A month before the Ankara summit, the composition of the founding coalition behind a treaty-based institution that Canada had agreed to host was still not a matter of public record.

Ankara partially resolved this. The nine signatories are now known, and Ottawa presented them as the countries entrusted with defining the bank's initial policies and directives. They represent a fraction of the original negotiating table. Canada's negotiator noted at the same time that South Korea's participation stood at roughly even odds and that no other G7 ally was close to signing. Canada remains the only non-European government among the bank's declared founders.

The absence of Europe’s three largest defence spenders is the more serious constraint. The United Kingdom and Germany have indicated they would not support the bank, while France has not committed. Together, they account for the majority of European NATO defence spending. The declared coalition instead consists mainly of middle powers and smaller allies, representing a much smaller share of Europe’s industrial and financial weight, alongside Ukraine, whose participation is strategically significant but financially constrained. A coalition of willing states can still build durable multilateral institutions, so their absence does not make the DSRB unviable. But it does raise the bar: the bank will need to deliver results strong enough to attract sceptics later, while Canada faces a greater burden to make the institution work than the April announcement suggested.

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Canada's Record and the Credibility Test

Canada’s role as an architect of allied defence financing sits uneasily with its own spending record. In 2014, the year Russia seized Crimea and NATO allies met in Wales to reaffirm the two per cent of GDP defence benchmark, Canada’s defence spending was roughly half that level. Over the following decade, the label of “free rider” described Canada’s spending record, not a partisan judgment. It reflects a pattern predicted by collective-goods theory: smaller allies tend to contribute less when they are protected by a dominant security guarantor.[1]

The government now reports having invested over $65 billion in defence and security in a single year and having reached NATO's two per cent target for the first time since the fall of the Berlin Wall. The milestone is real. It also drew informed scrutiny: how expenditure is counted under NATO's framework did some of that work, alongside new outlays. Both observations stand.

The larger commitment follows. The Hague Defence Investment Plan of June 2025 commits allies to spend 3.5 per cent of GDP in core defence expenditure, plus up to 1.5 per cent in resilience-related spending by 2035, and Ottawa states that it is on a pathway to five per cent by that date. Allies reaffirmed the Hague commitment at Ankara, noting that European allies and Canada increased core defence investment by more than $139 billion during 2025. For Canada, meeting the trajectory means increasing defence investment roughly two and a half times over a decade from a level reached for the first time in three decades. Berlin and London will weigh Canadian leadership against that record, not the announcements.

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Five Conditions for Strategic Success

Confirm the GDP-Counting Mechanism

The DSRB's most politically attractive feature is also its least settled. The bank's own materials state that member equity contributions are recorded as assets in national accounts and counted toward NATO GDP defence spending targets. The institution's architects advance that claim. The alliance, however, sets NATO expenditure definitions through its own defence planning process and has not amended them to confirm it. The distance between an architect's intention and a finance minister's signature is the whole of the matter.

The financial implications are significant. GDP counting is the primary incentive for allies weighing participation. Without it, capitalising the DSRB competes directly with bilateral procurement budgets; with it, allies receive NATO credit for the equity they contribute, making the investment easier to justify domestically. Absent this mechanism, the bank risks remaining undercapitalised and confined to the already-convinced.

Canada's leverage here is real but limited. Changing NATO expenditure definitions requires consensus among all allies, and two of the states whose agreement matters most sit outside the DSRB, with little incentive to legitimise an instrument they declined to join. Canada cannot deliver this alone. However, it can put the issue on the agenda ahead of NATO’s 2029 review of collective progress. As host, it occupies a position no other founding member holds. The objective should be clear: secure a formal confirmation from finance ministers, or a documented refusal, that clarifies how the bank’s capitalisation will be treated. What Canada should not accept is continued ambiguity.

Creating International Momentum for the DSRB

A bank does not reach strategic scale by waiting for governments to discover it, study it privately and eventually decide that membership is in their interest. Canada cannot treat the DSRB as a completed diplomatic transaction that is now moving quietly into implementation. It has to sell the strategic problem the institution exists to solve.

That requires deliberate, sustained engagement that reaches beyond a fixed list of reluctant European capitals to the wider group of allies and partners capable of shaping the bank's future scale. The United Kingdom, France and Germany matter. So do the Five Eyes, the Indo-Pacific Four, major G7 partners and other states with the financial capacity, industrial base or geopolitical weight to turn the DSRB from a small coalition into a consequential institution.

The immediate challenge is visibility, but visibility only opens the door. Outside the governments directly involved in the negotiations, the DSRB remains a relatively obscure initiative despite the scale of the financing problem it addresses. A broader communications effort can make governments aware that the DSRB exists. It cannot, however, explain why joining serves their individual interests. That case will look different in every capital and requires targeted engagement, not a generic message.

Each prospective member will weigh the DSRB against its own version of return on investment. For one government, the case may rest on supporting the public commons the institution represents. For another, it may be export promotion, easing pressure on a constrained procurement budget, growth capital for domestic supply chains, access technical expertise its own agencies lack, or the interoperability the bank's lending can help finance. No single pitch covers all of these considerations, and Canada should not try to make one.

The alternative is a bilateral approach. Canada should engage each prospective government directly, identify which of these benefits matters most to it, and help build the case in terms that fit its own interests and decision-making process. Once that case has been made, Canada’s role is to step back. Each government then runs its own internal process (cabinet review, public debate, legislative approval, whatever combination its constitution requires) and reaches its own conclusion on its own timeline.

Ottawa should therefore establish a dedicated international engagement function for this kind of bilateral work. It should engage each priority government through diplomatic, defence, financial and industrial channels, and build the specific case that government needs before its own decision-making process can begin. This would extend the work that secured the founding coalition: the same relationships and patience, applied to a wider group of governments.

Canada cannot decide whether a foreign legislature approves membership. It can decide whether that legislature ever receives a case worth bringing to a vote. As host, Canada should not leave that to chance.

Hold the Interoperability Lending Condition

Coordinated European defence procurement has repeatedly foundered on national industrial interests. Successive initiatives pursued through the European Defence Agency and the Organisation for Joint Armament Cooperation have delivered less consolidation than their mandates envisaged, largely because member states retain significant procurement autonomy under Article 346 of the Treaty on the Functioning of the European Union.[1] The resulting fragmentation is documented: at a 2015 NATO study on future defence budget constraints, Christian Mölling of the German Institute for International and Security Affairs observed that only six member states maintained what could be defined as a genuine air force, combining fighter aircraft, aerial refuelling tankers and airborne electronic warfare capabilities.[2]

The DSRB proposes to change those incentives directly. Its founding material states that the bank can require interoperability as a condition of lending, turning finance into an enabler of military harmonisation through incentives instead of regulation. The wording is permissive, not binding. It describes a capability the institution could exercise, not a charter provision committing it to do so, and that distinction limits how much analytical weight the condition can bear until the charter is ratified and published.

Canada’s position differs materially from that of Europe’s larger defence-industrial states. Germany cannot push interoperability requirements without creating friction with Rheinmetall’s commercial interests, while France faces similar constraints with Thales and Airbus Defence and Space. Canada’s defence industry is smaller, more export-oriented and less tied to domestic platform procurement. Ottawa therefore has less to lose by insisting that DSRB lending support interoperable capabilities.

The counterargument is that having less to protect also means having less to offer: Canada would be a relatively small shareholder seeking to shape governance alongside Europe’s largest defence primes. But that is precisely where Canada has an advantage. It is less constrained by the conflicts of interest that make it harder for Berlin and Paris to make the interoperability case credibly. 

Operationalise the Dual-Track Position

Canada’s position is now unusually distinctive. It signed its accession to SAFE at the Munich Security Conference in February 2026, and the Council of the European Union formally concluded the agreement in June, making Canada the first and only non-European country participating in the €150 billion instrument. The terms are particularly favourable: while third-country suppliers are generally limited to 35 per cent of the value of components in a SAFE procurement, Canada negotiated a threshold of up to 80 per cent.

The two tracks are also intended to complement one other. The DSRB presents SAFE and ReArm as demand-side instruments, with the bank serving as the supply-side complement. However, that remains the bank’s own framing rather than an agreed division of labour. In practice, the initiatives operate on different timelines, and have different memberships, mandates and financing conditions, and nothing automatically keeps them aligned.

Canada should therefore create a single interagency mechanism, housed within Global Affairs Canada, to coordinate its DSRB and SAFE roles while also leading the accession outreach proposed above. This would help keep the two tracks aligned and give prospective members and absent European powers a clear Canadian point of contact. Without that coordination, the initiatives risk drifting apart, and allies may reasonably conclude that Canada is accumulating institutional affiliations without providing the leadership needed to connect them.

Build Durability Across the Electoral Cycle

The next federal election may arrive before any of these issues are resolved, making durability a precondition for everything that follows. The headquarters city is still undecided, Parliament has not ratified the charter, the GDP-counting mechanism remains unconfirmed, the interoperability condition is unenforceable, and Canada has committed to a level of defence spending it has never sustained for long. The bank is intended to commence operations as early as 2027, with partners invited to complete their domestic treaty processes. Much of that work will fall to a government that has not yet been elected and may have campaigned against the commitments it inherits.

The response should be structural. Parliamentary ratification of the treaty, rather than reliance on an enabling statute or executive agreement, would create a stronger and more durable political commitment. Canada should also ensure that its defence SMEs are among the early beneficiaries of the bank’s lending. That would create a domestic constituency with a direct interest in the institution’s continuity, regardless of which party forms government.

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The Moment and Its Stakes

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About the Author

Meriam Meddeb is Founder and Lead Researcher at Trilliumix Strategy Inc., an Ottawa-based think-and-do tank. Her current research is anchored on the Defence, Security and Resilience Bank, situated within the broader frame of NATO burden-sharing economics, defence-industrial policy, and allied financing architecture. She has over a decade of applied experience in defence and security sector reform in fragile states, including advisory work for the UK Foreign Office, management of a US Bureau of International Narcotics and Law Enforcement Affairs-funded programme building leadership inside Tunisia's police institutions, and facilitation of the Nobel Prize-winning National Dialogue that resolved Tunisia's constitutional crisis in 2013. She holds an MA in Applied Security Strategy from the University of Exeter's Strategy and Security Institute, where she was a Chevening Scholar and received the Dean's Commendation and Director's Prize.

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Canadian Global Affairs Institute

The Canadian Global Affairs Institute focuses on the entire range of Canada’s international relations in all its forms including trade investment and international capacity building. Successor to the Canadian Defence and Foreign Affairs Institute (CDFAI, which was established in 2001), the Institute works to inform Canadians about the importance of having a respected and influential voice in those parts of the globe where Canada has significant interests due to trade and investment, origins of Canada’s population, geographic security (and especially security of North America in conjunction with the United States), social development, or the peace and freedom of allied nations. The Institute aims to demonstrate to Canadians the importance of comprehensive foreign, defence and trade policies which both express our values and represent our interests. 

The Institute was created to bridge the gap between what Canadians need to know about Canadian international activities and what they do know. Historically Canadians have tended to look abroad out of a search for markets because Canada depends heavily on foreign trade. In the modern post-Cold War world, however, global security and stability have become the bedrocks of global commerce and the free movement of people, goods and ideas across international boundaries. Canada has striven to open the world since the 1930s and was a driving factor behind the adoption of the main structures which underpin globalization such as the International Monetary Fund, the World Bank, the World Trade Organization and emerging free trade networks connecting dozens of international economies. The Canadian Global Affairs Institute recognizes Canada’s contribution to a globalized world and aims to inform Canadians about Canada’s role in that process and the connection between globalization and security. 

In all its activities the Institute is a charitable, non-partisan, non-advocacy organization that provides a platform for a variety of viewpoints. It is supported financially by the contributions of individuals, foundations, and corporations. Conclusions or opinions expressed in Institute publications and programs are those of the author(s) and do not necessarily reflect the views of Institute staff, fellows, directors, advisors or any individuals or organizations that provide financial support to, or collaborate with, the Institute.

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