Rod Phillips: Why Toronto is the right location for new global defence bank

The Toronto financial district: Toronto is the second-largest financial centre in North America, with more than 300,000 professionals working in all aspects of finance and insurance. It would be a fitting location for the new Defence, Security and Resilience Bank, writes Rod Phillips. Photo by Peter J. Thompson / National Post

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First in a series from advocates for the five Canadian cities vying to be the home of the new Defence, Security and Resilience Bank.

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Canada has been chosen by allied governments to host the Defence, Security and Resilience Bank (DSRB), a new multilateral institution designed to mobilize long-term capital for defence procurement, industrial expansion and infrastructure resilience. Prime Minister Mark Carney and the federal government deserve credit for making a compelling case to our allies. The critical question Ottawa now has to answer is, which Canadian city will host it?

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This global bank, with its team of over 3,500 financial professionals, fills a gap in commercial lending markets. As allied governments move to expand military capacity at speed, long-term capital for defence industrial production requires an institution purpose-built to provide it. Five Canadian cities have put themselves forward: Halifax, Montreal, Ottawa, Toronto and Vancouver.

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To decide which makes the most sense, the federal government needs to run a formal, transparent process with published criteria and a clear timeline. Allied partners and institutional investors will be watching. The DSRB needs to raise capital at scale in markets that price defence and infrastructure risk. It needs the confidence of allied finance ministries and institutional investors from the day it opens. And it needs to be operational quickly, which means it cannot wait for an ecosystem to develop around it.

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Consider what a new institution inherits from its location. Toronto has the densest concentration of financial regulators, market infrastructure and investor-protection bodies in Canada, most of it within a few blocks. The Ontario Securities Commission, TMX Group, the Canadian Investment Regulatory Organization, and the Canadian Depository for Securities constitute a functioning globally reluctant, financial architecture. For a bank working across defence procurement, cyber risk and global capital market, that architecture becomes part of its credibility with the counterparties it will need from day one.

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There is also the question of market depth. Toronto is the second-largest financial centre in North America, with more than 300,000 professionals working in all aspects of finance and insurance. Each of Canada’s Big Five banks — RBC, TD, Scotiabank, BMO and CIBC — runs its global operations from Toronto’s financial district, as do leading insurers including Manulife, Sun Life, Intact Financial, and Fairfax Financial Holdings. Half of the Canada’s Maple 8 pension funds are based here: CPP Investments, OMERS (Ontario Municipal Employees Retirement System), the Ontario Teachers’ Pension Plan, and the Healthcare of Ontario Pension Plan. The Global Risk Institute and the Toronto Centre for Global Leadership in Financial Supervision operate here as well, the latter having trained financial supervisors and regulators from more than 190 jurisdictions.

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The structured, long-dated, and often complex transactions a bank like the DSRB will require are transactions this market executes routinely. The DSRB’s success will be measured not in ribbon-cuttings, but in the rates at which it borrows on international markets, the confidence of investors and the quality of the businesses it lends to. Market participants will look closely at the regulatory and capital-markets infrastructure around any new issuer, and a headquarters in a city whose institutions they already trust is a quantifiable advantage from Day 1. That principle has governed where serious multilateral institutions have been placed. The Bank for International Settlements is in Basel, Switzerland, because Basel had the central banking relationships it needed. When allied governments created the European Bank for Reconstruction and Development in 1991, they chose London, England, because London had the financial depth a new institution would need from its first day of operation. Neither was a symbolic choice. Decades later, both remain anchors of the global financial architecture.