Explainer: Why are Canadian cities fighting to host the global defence bank?

The news that Canada has been chosen as the host country for a proposed NATO global defence bank has seen a heated rivalry erupt between the four main cities in the running to serve as headquarters, including Montreal.

Local political and financial institutions have held numerous news conferences lauding Montreal’s aerospace sector and wealth of international organizations. Meanwhile, Toronto has been accused of raising the spectre of a Quebec referendum in an attempt to scuttle the city’s chances.

Here’s a closer look at what the defence bank will do and why it’s sparked such a competition among Canadian cities.

What is it?

Officially dubbed the Defence, Security and Resilience Bank (DSRB), the proposed bank would be a multilateral institution, similar to the World Bank, that would pool the cash resources of as many as 40 NATO and allied countries. All member nations would have equity in the bank, allowing them to access funds at relatively low interest rates to finance defence-related contracts.

Why is the bank deemed necessary?

Defence investments are often stigmatized because they’re associated with war or military purposes. Because of the extra scrutiny and complexity involved, they’re also considered riskier, making it difficult for small- and medium-size businesses to secure loans.

“The defence sector has had problems getting financing from traditional banks for various reasons, including that investing in defence projects traditionally take a long time,” noted Dominique Babin, a Montreal-based partner with the global law firm Dentons who specializes in defence. “Let’s say you want to buy a ship, or to buy planes, it’s long process before you get to the end delivery.”

Security issues, possible penalties for late deliveries and warranty costs on high-priced equipment are other reasons banks are skittish. The DSRB could guarantee long-term loans for multi-year projects, reducing anxiety for investors.

Defence spending has not been a priority for Canada’s federal government in recent decades. But with shifts in the geopolitical world order, several NATO countries have decided they need to invest more to secure their sovereignty. Prime Minister Mark Carney announced he intends to significantly increase defence spending and bolster the country’s defence industry by awarding more contracts at home.

A global defence bank would back the financing given by traditional banks to industries. The DSRB is expected to accumulate $135 billion U.S. in pooled assets.

Why was Canada chosen?

Canada is well regarded from a global point of view, and seen as a neutral country with a strong financial sector and reputable banks, Babin said. It has also lobbied hard, and from a political perspective it may have been easier for European countries to choose Canada in order to limit resentment on their continent.

Unlike European nations that already have access to similar multilateral institutions, Canada, with the exception of its recent admission to the European Union’s Security Action for Europe (SAFE) program, does not. Hosting the DSRB could give it access to lower costs for large-scale orders by joining with other countries, provide local companies an easier route to financing, and make it a global leader in the high-stakes market of defence financing.

Why is Montreal in the running?

Because of its strong financial sector, aerospace industry and the multitude of defence-related companies on its territory and region. Montreal Mayor Soraya Martinez Ferrada noted the city is home to more than 60 international organizations, multiple universities and research facilities, and an international port with close access to Europe. She made the pitch during a lavish presentation in mid-February attended by the province’s business and political leaders, including François Legault, premier of Quebec at the time.

Along with international prestige and business contacts, the bank would create 3,500 jobs, and could generate economic spinoffs of $600 million for the local economy, Legault said.

Who else is bidding?

Toronto is considered another main contender because of its strong finance and business sector, although it lacks Montreal’s defence and aerospace credentials.

Ottawa is the country’s political centre, home to more than 100 embassies and consulates and counts numerous high-tech firms. But it lacks an international airport with connections to the European cities the bank will be affiliated with.

Vancouver’s Mayor Ken Sim has been selling his city’s geographic location as a gateway to the Pacific, and relative proximity to Asia and its growing defence markets.

Heated competition?

Quebec’s political class has accused Toronto of engaging in scare tactics after it emerged promoters in Toronto had told federal officials the Parti Québécois plan to hold an independence referendum if its takes power should be a motive to exclude Montreal. In its promotional material Toronto mentions its “political stability.”

Some politicians responded that the province has lived through two referendums and still maintained its international organizations. Quebec Liberal Party house leader Marc Tanguay, however, noted “a referendum … and separation, represent economic instability.”

It’s not just Toronto promoters who raised the spectre of a referendum. The question arose, from journalists, when Montreal hosted its bid in mid-February. Legault responded that the desire for separation in Quebec is low.

Ontario Premier Doug Ford said Tuesday he’s not interested in raising the referendum or attacking rival cities. “Well, I say Go Habs!,” he said. “You know, Montreal is great.”

Are there detractors?

Yes. Civil society groups and organizations like World Beyond War and Just Peace Advocates say the government is favouring spending billions on military actions that would be better used to tackle rising prices and improving health care and education.

“The DSRB would redirect public money away from urgent social and environmental needs to the bloated revenues of weapons companies and their shareholders,” World Beyond War wrote in an open letter to Mark Carney signed by 30 groups. “We reject the DSRB war bank.”

Others have questioned whether another global defence funding institution is necessary, since others already exist.

What happens next?

The federal government is expected to choose a location in the coming months. At the same time, the legislatures of the founding member countries will be asked if they are in favour of establishing and backing the bank.

Canadian candidates are asking the federal government to provide clearer guidelines on what it is seeking in a host city so that they can better respond.

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