In an era of unprecedented geopolitical tension and surging military expenditures, the way nations finance defence spending is undergoing a fundamental transformation. This rapid increase, driven by conflicts and rising power competition, is straining national budgets and prompting innovative approaches to funding security.1 A landmark initiative now emerging is the Defence, Security and Resilience Bank (DSRB), a new multilateral financial institution designed to help nations mobilize large-scale private capital for defence and security needs without overburdening government balance sheets.2
As of April 2026, Canada emerged as a leading advocate of the DSRB initiative and will serve as the host of the headquarters of the DSRB, given its robust financial sector and commitment to increased defence investment.3 In parallel, a coalition of major international banks, including six of Canada’s leading banks have endorsed the initiative as partner banks to the DSRB, signaling commitment to deploying private capital at scale to fund security and their ability to provide resources to ensure the DSRB’s financial credibility from day one.4, 5
This article provides an overview of today’s defence financing landscape, the DSRB’s purpose and practical ways that governments, financial institutions and specialist advisors can support the DSRB in achieving its mission.
The current state of defence financing: The urgency for innovative solutions
Surging demand and strained budgets
Around the world, defence budgets are climbing at a pace unseen since the Cold War. This surge is a direct response to renewed geopolitical threats – from the war in Ukraine to tensions in the Indo-Pacific region – which have compelled nations to re-arm and invest heavily in modernizing their militaries and defence posture. In NATO and allied countries, leaders have signaled intentions to raise defence spending towards 5% of GDP over the coming decade to bolster collective security.6 Canada, for instance, has achieved NATO’s 2% of gross domestic product (GDP) defence spending target in the 2025 – 2026 fiscal year and has pledged to reach 5% by 2035,7 aligning with a NATO-wide Defence Investment Pledge made in 2025. Such ambitious spending goals underscore the gravity of today’s security environment, but they also bring a significant financial burden.
Traditional methods of funding defence, primarily through annual government budgets, create hard trade-offs with domestic priorities, often forcing cuts in areas like health, education and infrastructure.2 Additionally, many countries face tight fiscal constraints and high borrowing costs, especially smaller nations with credit ratings below those of larger economies. In short, while the need for defence investment is urgent, paying for it through conventional means is increasingly challenging.
Financing gaps and economic impacts
The current model of defence financing has revealed structural weaknesses. Relying on annual budget allocations makes it difficult to commit to the long-term, large-scale projects or unexpected events that arise, which modern defence procurements require.2 Critical suppliers, particularly small and mid-sized enterprises in defence supply chains, often struggle to secure commercial bank loans for expansion, due to long project lead times and strict lending criteria such as environmental, social and governance restrictions on defence investments, for example. This can lead to bottlenecks, higher costs and less resilient supply chains.2
Additionally, independent economic analysis suggests that simply adding more money into defence budgets yields only modest short-term economic benefits. The DSRB’s Chief Economic Advisor highlights that when governments increase defence budgets and spend in the usual way or what is considered the normal channel today, much of the money is absorbed by imports, wages or a narrow group of prime contractors. This produces a brief economic boost, but little that endures. In contrast, when defence investment is instead channelled through a multilateral financial institution, the dynamic changes as public capital is pooled, private finance is mobilized and investment flows through the entire supply chain rather than stopping with a handful of defence prime contractors. The result is not just short‑term activity, but the creation of productive activities that support growth and resilience over time, with economic impact that is significantly stronger and more sustained.8
This insight has paved the way for innovative financing mechanisms that can multiply the effect of public funds while minimizing pressure on national debts.
The Defence, Security and Resilience Bank (DSRB): Purpose and promise
Enter the Defence, Security and Resilience Bank, a bold response to these challenges. The DSRB is envisioned as a multilateral bank exclusively owned by nation-states, modeled after institutions like the World Bank but dedicated to collective defence and security. Its core mandate is to mobilize and deploy private capital for allied defence, security and resilience projects.4
In practical terms, the DSRB will raise funds on international capital markets (issuing AAA-rated bonds backed by its member countries’ guarantees) and provide long-term, affordable loans and guarantees for defence and supply-chain investments.9 This approach directly addresses three critical needs in the current landscape:4
Over time, this approach should also stimulate broader economic benefits, financing dual-use technologies and infrastructure that bolster not only military readiness but also civilian industries, thereby creating jobs and innovation beyond the defence sector.
As Kevin Reed, President of the DSRB Development Group, explains, “This is not just about financing defence – it is about redefining deterrence for the modern era. In the twentieth century, deterrence meant industrial mobilization. In the twenty-first, it means financial partnership.” 6 This vision positions the DSRB as a transformative tool for collective security and sustainable defence investment.
Roles of nations and partners: A collaborative effort led by Canada
The DSRB is fundamentally a collective by a coalition of nations, designed to strengthen defence through shared financing.4 Canada has emerged as a driving force in the DSRB initiative and the host country of the DSRB’s headquarters. Canadian government officials, including the Ministers of Finance, Defence and Foreign Affairs have publicly championed the DSRB as a cornerstone of collective security strategy. As stated by François-Philippe Champagne, Minister of Finance and National Revenue, Canada is committed to advancing the DSRB and strengthening partners’ resilience in a shifting geopolitical landscape, leveraging its world-class industrial base and skilled workforce to support evolving defence and technology needs.10
A unique feature of the DSRB’s formation is the early involvement of leading private-sector banks as strategic partners. Ten prominent banks are contributing expertise in capital markets, sovereign lending and risk management. These include JPMorgan, ING, Commerzbank, Landesbank Baden-Württemberg (LBBW), and six Canadian banks: Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Scotiabank, Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC) and National Bank of Canada (NBC).5, 6 Their involvement ensures the DSRB will launch with financial credibility, technical capacity and the investor confidence needed to operate at scale.
This public-private collaboration is mutually beneficial: governments gain from banks’ financial know-how, while commercial banks get new opportunities in defence sector finance with the DSRB’s guarantees reducing their risk.9 Ultimately, these partnerships will help the DSRB hit the ground running, with the ability to issue AAA-rated bonds and structure innovative financing tools to fund defence acquisitions and infrastructure as soon as the institution is operational.
Together, these partnerships reflect a shared commitment to building a resilient, interoperable and well-financed defense ecosystem for the democratic world.
Conclusion: Enabling the success of the DSRB
The creation of the DSRB represents a transformative approach to defence financing at a time when innovative solutions are needed. By pooling resources and expertise across nations and partners, the DSRB has the potential to help address persistent funding constraints, accelerate procurement and strengthen the resilience of defence supply chains at a time of heightened geopolitical uncertainty.2
Canada’s leadership, alongside growing interest from partner governments and financial institutions, reflects a shared recognition that new financing architectures will be needed to support collective defence objectives. Realising this ambition, however, will depend not only on political commitment and capitalisation, but on effective institutional design and disciplined execution of its vision.
Experience from multilateral financial institutions show that success hinges on clear mandate definition, sound governance arrangements, fit for purpose financial instruments and the ability to translate strategic intent into operational reality.
Drawing on decades of experience advising multilateral development banks, governments and development funds, KPMG works with institutions at precisely these moments of transition, to go from conceptual to operational, with a deep understanding of what enables international financial institutions to succeed.
From shaping mandates, strategic priorities and governance frameworks to designing financial instruments and overseeing large scale programs, KPMG’s International Development Assistance Services (IDAS) and Banking and Capital Markets teams support clients in building institutions that are resilient, credible and fit for purpose by leveraging expertise in strategy, policy advisory, governance, organizational design and innovative financing models.
Authors and contributors
Dan Doran, Executive Director and National Defence Lead, Advisory
Imeyen Akai, Senior Manager, Digital Government Solutions, Advisory
References
- Forecast International. “A New Era of Global Defense Spending: Key Trends and What’s Ahead.” Defense Security Monitor, June 13, 2025.
- Defence, Security and Resilience Bank (DSRB). “What is the DSRB.” March 2026.
- Department of Finance Canada. “Canada welcomes progress towards the establishment of the Defence, Security and Resilience Bank and hosting its headquarters.” News release, April 29, 2026.
- Defence, Security and Resilience Bank (DSRB). “Home.” March 2026.
- The Globe and Mail. “Big Six Banks Support New Multinational Defence Bank.” March 21, 2026.
- Business Wire. “Transatlantic Financial Leaders Back Creation of New Defence Bank.” August 7, 2025.
- Department of National Defence Canada. “Canada Achieves the 2% of Gross Domestic Product Defence Spending Benchmark.” News release, March 2026.
- Harding, Rebecca. “Financing Defence for Growth and Resilience.” Rebeccanomics, September 2025.
- Morningstar / Dow Jones Newswires. “New European Defense Bank Gets Support from JPMorgan, ING, Others.” August 7, 2025.
- Department of Finance Canada. “Canada Hosts Partners to Advance Establishment of the Defence, Security and Resilience Bank.” News release, March 23, 2026.
