The United Kingdom said this week it will not be joining the multilateral defence bank that Prime Minister Mark Carney has been championing.
Both the United Kingdom and Canada framed the decision as a mutual one. But there can be little doubt this is a blow to the proposed bank, formally called the Defence, Security and Resilience Bank (DSRB).
Frankly, we are not surprised by the U.K.’s decision. The bank as it currently stands is ill-conceived and unnecessary.
The DSRB is envisioned as being a sort of World Bank for defence financing to support NATO allies and defence firms in those countries.
“Our [defence bank] proposal builds on the tried and tested model of multilateral financial institutions such as the World Bank,” Carney co-wrote with Luxembourg’s prime minister in a June op-ed in the Financial Times.
With the World Bank, member governments pledge capital that backs the bank’s creditworthiness, enabling it to borrow cheaply from global investors. The bank then lends that money to developing countries for development projects. Recipient countries benefit from lower borrowing rates than they could get on their own.
Critically, all of the world’s wealthiest countries are members of the World Bank. Its largest contributors include the United States, Japan, Germany, the United Kingdom and France.
With the DSRB, none of these wealthy countries have said they plan to join.
And the countries that have committed are not exactly a list of financial giants. At present the participating countries are Albania, Belgium, Greece, Latvia, Luxembourg, Romania, Turkey and Ukraine.
Aside from Canada, Luxembourg is the only country on this list with a AAA credit rating; several have junk ratings. Canada’s economy also accounts for about 40 per cent of all of these economies combined.
Canada’s inordinate heft in such an organization represents a significant financial risk. We would in effect be lending our strong credit rating to the bank, so it could lend to these member states and their defence firms at lower rates than they would otherwise qualify for.
Carney and others argue it is necessary to help out defence firms that struggle to raise money in the private markets.
“Right now, [defence firms] must contend with a structural market failure that limits crucial access to capital,” Carney wrote in the Financial Times op-ed.
“[C]apital management rules prevent the defence ecosystem from receiving financing at the volume it needs from private banks,” he added.
Some Canadian defence experts have also said that small and medium-sized defence firms face a “valley of death” — a period between developing a promising technology and securing the financing needed to bring it into operation.
But it is not clear that these claims stand up to scrutiny in the current market climate.
According to a new report, defence startups in NATO countries raised $27 billion in 2026, the most active year ever. That is about double the amount raised in all of 2025 and up 45-fold from the $600 million raised in 2016.
The report also shows strong growth in other types of defence funding, including private equity, project finance, debt and grants.
The latter points to another knock against the DSRB: the fact that there are other existing mechanisms now offering defence financing.
This includes SAFE, the EU’s €150-billion defence lending program that launched in 2025. And it includes the Multilateral Defence Mechanism being developed by the United Kingdom, Netherlands, Finland and Poland to fund the joint procurement of military equipment.
Finally, it is worth noting that underwriting defence spending through the DSRB would risk obscuring transparency around Ottawa’s own defence spending — something we noted last week is badly needed.
In short, it may sound glamorous to host and back a multilateral defence bank. But the devil is in the details.
It is not clear the DSRB addresses a true market failure. And if other major allies do not join, Canada ends up underwriting much of the bank’s activities.
Without major allies on board, Canada would be lending its strong credit rating to prop up borrowers markets have judged risky, for a market failure that may not exist. That is a bad trade.
