Rethinking Bank Funding to the European Defence Sector

In the wake of the European Union's (EU) announcement of its ReArm Europe Plan on 4 March 2025, this commentary discusses the ways in which EU countries could call on banks to help finance increased defence spending.

Key highlights include:
-- Military spending reached an all-time high in 2024, and we expect this to continue rising amid the war in Ukraine and the current geopolitical environment.

-- Governments are exploring solutions for banks to contribute, especially through bank taxes or regulated deposit schemes.

-- Banks will also need to address any conflict with Environmental, Social, and Governance criteria and increasing funding for the defence sector.

"As NATO's defence spending targets look set to rise, it seems increasingly likely that EU banks will need to shoulder some of this burden, whether through taxes or deposit schemes", said Arnaud Journois, Senior Vice President, European Financial Institution Ratings. "While the structure of defence projects remains very complex and subject to significant legal risk, we think the unveiling of the EU's ReArm Europe Plan could lead to less reluctance from banks to help finance defence spending".