Luxembourg was among nine countries, alongside Canada, Albania, Belgium, Greece, Latvia, Romania, Turkey and Ukraine, that formalised their backing for the DSRB at the NATO summit in Ankara on 7 July. The founding Articles of Agreement were negotiated in Montreal in April, when member states selected Canada to host the bank.
The DSRB was proposed publicly by Frieden and Canadian Prime Minister Mark Carney in a Financial Times op-ed ahead of the summit. It is structured on the model of the World Bank and the EBRD, funded through paid-in capital and callable sovereign guarantees, with the aim of securing a AAA rating that would let it lend directly to defence companies and member states, and guarantee loans made by commercial banks. Founding members intend to make it operational in 2027, and paid-in contributions would count towards NATO’s target of 5% of GDP on defence spending.
The bank would mobilise additional private capital by guaranteeing loans made by commercial banks, thereby reducing their risk exposure and enabling them to increase lending to the defence sector. It would also be able to lend directly to defence companies or to member states themselves.
Carney and Frieden see the new bank as a collective security instrument designed to finance the defence industry of member states, particularly strategic SMEs that currently face difficulties accessing credit, and to support the most urgent rearmament needs, including categories of investment (such as conventional weapons systems, ammunition and munitions) that many other financial institutions are generally unwilling or unable to finance.