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A historic turning point: Reimagining defence
Following the Cold War, Canada significantly reduced its defence spending, based on the assumption that geopolitical tensions had eased. As a result, the federal defence budget declined. Against this backdrop, institutional and private investors and lenders have traditionally avoided the defence sector. The rise of ESG criteria in the 2000s further reinforced investor caution.1 According to Kevin D. Reed, President of the Defence, Security and Resilience Bank (DSRB), some banks have even gone so far as to exclude financing for companies operating in the sector altogether.2
It is precisely to address this widely observed gap that the DSRB would be created. The proposed institution would take the form of a multilateral bank owned by participating states and designed to make defence projects financeable once again through robust guarantees for Canadian banks and lower borrowing costs for borrowers. Its model would resemble that of Export Development Canada, but on a larger scale. The DSRB would seek to obtain a AAA credit rating, enabling it to raise funds at very low cost and pass that advantage directly to Canadian banks and borrowers, without creating joint debt obligations among participating states.3
In January 2026, Canada confirmed its leading role in the project, including the possibility of establishing the institution in Montréal, Ottawa or Toronto. The DSRB Development Group, responsible for the initiative's incubation, immediately welcomed Canada's leadership.4
Canadian banks get on board
In February 2026, six Canadian banks officially announced their participation as partner banks of the DSRB: National Bank of Canada (NBC), Bank of Montreal (BMO), Royal Bank of Canada (RBC), Canadian Imperial Bank of Commerce (CIBC), Scotiabank and Toronto-Dominion Bank (TD).5 Their commitment goes beyond a simple political endorsement of the initiative. For these institutions, the DSRB represents a unique opportunity to support the creation of a financial architecture capable of mobilizing private capital at scale, reopening a market long constrained by public-sector retrenchment, and contributing to the development of guarantee programs that will restore access to credit for participants in Canada's defence supply chain.
This trajectory aligns with Canada's broader ambitions in the defence sector. The Government of Canada is now targeting defence spending equivalent to 5% of GDP by 2035, representing a total investment of approximately CA$150 billion over a 10-year period.6 At the same time, Canada has become the first non-European partner in the European Union's Security Action for Europe (SAFE) program, a €244 billion initiative designed to accelerate the acquisition of priority capabilities such as ammunition and drones. This partnership opens the door to privileged access to joint European procurement opportunities for Canadian suppliers.7 Canada's participation in SAFE will be supported by the newly established Defence Investment Agency, whose mandate includes reducing administrative barriers, centralizing application review and approval processes, and strengthening the country's industrial capacity. This new organization will also enable Canada to better coordinate its partnerships with key allies such as the United Kingdom, Australia and France.8 For the six Canadian banks mentioned above, the presence of a single federal point of contact represents a significant improvement in risk management and coordination.
Benefits for Canadian banks and borrowers
For Canadian banks, the DSRB would integrate directly into the traditional credit analysis and lending process.9 A bank would review a transaction using its usual credit practices and then seek a guarantee covering a significant portion of the loan. Backed by an institution targeting a AAA credit rating, such a guarantee would reduce the risk of loss, lower regulatory capital requirements and enable banks to offer borrowers more attractive financing terms. Credit committee decisions could also be accelerated, as the residual risk retained by the bank would be smaller and more standardized. Operationally, the originating bank would remain in control of the financing process. It would engage with the DSRB to assess the project, determine the appropriate level of coverage and make the DSRB's guarantee a condition precedent to funding. For Canadian banks, the equation is therefore clear: the defence market is entering a period of expansion, and the DSRB could act as a powerful financial multiplier.
For companies operating in the defence sector, particularly those developing dual-use technologies, the impact would be equally tangible.10 Longstanding barriers—including lengthy project cycles, complex collateral requirements, ESG constraints and the sector's reputational challenges—would be significantly mitigated when part of the credit risk is absorbed through a guarantee such as that offered by the DSRB. On the demand side, Canada's commitment to increase defence spending to 5% of GDP by 2035 creates multi-year visibility for suppliers, enabling them to invest, recruit and scale their operations with greater confidence. For banks, this translates into increased financing activity, both to support established companies and to facilitate the emergence of new strategic suppliers within the defence supply chain.
Conclusion
In a market where speed of execution, innovation capacity and effective risk management are becoming decisive competitive advantages, Canadian banks that quickly integrate the mechanisms offered by the DSRB will be well positioned to support strategic companies, dual-use technologies and critical supply chains. This represents a rare opportunity to establish a strong presence in a segment that, for the first time in decades, is opening in a structured and financially secure manner.
Canadian banks seeking to take advantage of this new financial architecture—whether by adapting their credit processes or structuring their first guaranteed transactions—would benefit from working with advisors who understand both Canadian regulatory requirements and the evolving international dynamics of defence financing ahead of the DSRB's formal launch.
To explore these opportunities, secure your first mandates in the defence sector or optimize your lending strategies, Dentons' Corporate and Banking and Finance teams are ready to assist. We are closely involved in these developments and are well positioned to help Canadian banks structure and negotiate defence-sector financings in Canada and internationally.
Footnotes
1. Institut de recherche et d'informations socioéconomiques (IRIS), "Dépenses militaires au fédéral," February 2012, online: https://iris-recherche.qc.ca/wp-content/uploads/2021/3/Note-militaire-web1.pdf; Business Council of Canada, "Security and Prosperity: The Economic Case for a Defence Industrial Base Strategy," November 25, 2024, online: https://www.thebusinesscouncil.ca/report/security-and-prosperity/. ↩
2. National Post, "How a multibillion dollar defence bank could help Canada increase its military spending," June 7, 2025, online: https://nationalpost.com/news/canada/how-canada-wins-defence-bank. ↩
3. Defence, Security & Resilience Bank(DSRB), "What is the DSRB," online: https://www.dsrb.org/what-is-the-dsrb; James Chen, "AAA Credit Rating Explained: Definition, Criteria, and Bond Types," Investopedia, September 18, 2025, online: https://www.investopedia.com/terms/a/aaa.asp. ↩
4. DSRB Development Group, "Canada backs new defence, security and resilience bank," January 31, 2026, online: https://www.newswire.ca/news-releases/canada-backs-new-defence-security-and-resilience-bank-834078602.html. ↩
5. Ian Bickis, "All Big Six Canadian banks now backing proposed defence bank," February 11, 2026, CTV News, https://www.ctvnews.ca/business/article/all-big-six-canadian-banks-now-backing-proposed-defence-bank; Defence, Security & Resilience Bank (DSRB), "Home," online: https://www.dsrb.org/. ↩
6. Prime Minister of Canada, "Canada joins new NATO Defence Investment Pledge," June 25, 2025, The Hague, online: https://www.pm.gc.ca/en/news/news-releases/2025/06/25/canada-joins-new-nato-defence-investment-pledg. ↩
7. Prime Minister of Canada, "Prime Minister Carney secures Canada's participation in the European Union's SAFE initiative," December 1, 2025, Ottawa, online: https://www.pm.gc.ca/en/news/news-releases/2025/12/01/prime-minister-carney-secures-canadas-participation-european-unions. ↩
8. Prime Minister of Canada, "Prime Minister Carney launches new Defence Investment Agency to rebuild, rearm, and reinvest in the Canadian Armed Forces faster," October 2, 2025, Ottawa, online: https://www.pm.gc.ca/en/news/news-releases/2025/10/02/prime-minister-carney-launches-new-defence-investment-agency-rebuild. ↩
9. Defence, Security & Resilience Bank (DSRB), "What is the DSRB," online: https://www.dsrb.org/what-is-the-dsrb. ↩
10. Emmanuel Martinez, "Filière défense: 430 entreprises déjà actives dans le secteur, dit le ministre Boulet," Les Affaires, February 13, 2026, online: https://www.lesaffaires.com/mon-entreprise/entrepreneuriat-et-pme/filiere-defense-430-entreprises-deja-actives-dans-le-secteur-dit-le-ministre-boulet/. ↩
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
