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Liberalised policies, surging investments, and new financial instruments — all in service of Europe’s rearmament. Banks are opening up to the defence sector, attracted by long-term returns, while governments see private financing as a way to ease pressure on overstretched defence budgets. Both sides stand to benefit greatly from deeper cooperation, with tangible gains for Europe’s security.
French banks shift into „war economy”
French banks are taking the lead in opening up to the defence sector. The EU’s largest bank, BNP Paribas, along with France’s second-largest, Crédit Agricole, have recently relaxed their internal policies by removing clauses restricting financing for so-called „controversial weapons.” The ban now applies only to armaments explicitly prohibited under international treaties, giving these institutions far greater flexibility. In practice, this means opening financing channels to start-ups and companies developing innovative combat systems such as autonomous drones and selected types of munitions.
The liberalisation of lending rules follows a significant increase in private defence financing that has been under way since 2021. In 2024 alone, BNP Paribas directly allocated €12 billion to the French, European, and North American defence sectors, while managing €2.5 billion in assets tied to defence companies, primarily French small and medium-sized enterprises (SMEs).
Currently, France’s six largest banks — BNP Paribas, Crédit Agricole, Société Générale, BPCE, Crédit Mutuel, and Banque Postale — are providing financial support to the French defence industry worth around €37 billion. These institutions have also declared their „full mobilisation” to meet the sector’s growing needs, which will likely mean billions of euros in additional loans and investments in the coming years.
The French banking sector is thus adapting to the realities of the „war economy” (l«économie de guerre) declared by President Emmanuel Macron following Russia’s invasion of Ukraine. Banks increasingly view defence as a sector offering high and long-term profitability, underpinned by steadily growing public expenditure.
A pan-European trend: billions for defence from Berlin to Amsterdam
These changes in banking policies toward the defence sector are no longer a local phenomenon but part of a broader pan-European trend. In May 2025, Germany’s largest bank, Deutsche Bank, established a dedicated defence team, with its loan portfolio in this area already reaching tens of billions of euros.
Moreover, Deutsche Bank, Commerzbank, LBBW, and the Dutch ING are involved in the development of a new multilateral financial instrument – the Defence, Security & Resilience Bank (DSR Bank). The institution is envisioned as an international investment bank tasked with issuing AAA-rated bonds, providing European governments with new and affordable sources of capital for defence spending. This mechanism would significantly reduce the financial risk for the banking sector and is expected to raise over €100 billion in funding.
Poland: where growing needs and ambitions meet structural limitations
Increased activity is also visible in Poland – the European country with the largest relative defence funding needs. In September, PKO Bank Polski (PKO BP) and the Polish Armaments Group (PGZ) signed a strategic cooperation agreement, raising the financing limit from 2 billion PLN to as much as 12 billion PLN, primarily to expand and modernise domestic production capacities. Overall, the Polish banking sector is showing an increasingly positive attitude toward financing defence-related projects.
Poland’s ability to provide long-term financing for large-scale defence programmes, however, is constrained by the structural weakness of its banking sector, which remains disproportionately small relative to the overall size of the national economy. The ratio of banking assets to GDP currently stands at only 88% and continues to decline. By comparison, the figure reaches around 350% in France and 280% in Germany.
According to the Polish Bank Association (ZBP), the main reason for this situation lies in high fiscal and regulatory burdens, which limit the ability of domestic banks to accumulate sufficient capital. A particular point of criticism is the banking tax, levied on assets rather than liabilities, which can in practice penalise lending activity and disincentivise banks from expanding their financing of the broader economy, including the defence sector.
Private capital – the missing backbone of Europe’s defence
The scale of engagement by European banks highlights how crucial private capital could become in the continent’s rearmament process. Yet, the public debate on defence financing remains focused almost exclusively on the contributions of national governments and EU institutions.
This situation stems from the very nature of the defence sector, which operates under monopsony conditions — with a single main buyer, the state, and numerous suppliers dependent on public contracts and exports. As many European countries have pledged to allocate around 3.5% of GDP to defence amid rising fiscal deficits, greater private-sector involvement is becoming indispensable to ensure financial stability and long-term sustainability.
The largest funding gap is felt by start-ups and small and medium-sized enterprises (SMEs), whose operations rely heavily on costly research and development (R&D). According to a study by DG DEFIS, this gap amounts to at least €3–4 billion. Similar challenges also apply to the expansion of production capacities, where financing consistently falls behind the soaring demand for military equipment, as the continent returns to mass production not seen for decades.
At the same time, the financial sector has a clear interest in engaging with the defence industry, driven by the prospect of high and stable investment returns. These are largely guaranteed by the certainty that public funds will continue to flow into defence over the coming years, as well as by the growing number of companies operating in promising dual-use technologies. In addition, there has been a broader shift in the perception of the defence sector itself, which is once again seen as a public good itself in an era of genuine security threats to the continent.
Governments and Brussels pave the way for banks
The growing openness of the banking sector to defence financing stems not only from the decisions of private institutions but also from the actions of national governments and European bodies. The public sector is fully aware of the need to draw banks and investors into Europe’s remilitarisation process.
In France, this approach was exemplified by a March conference in Bercy (Paris), organised by the Ministry of Finance, which brought together representatives of the government, banking sector, and defence industry. The aim of the meeting was to encourage financial institutions to multiply their support for the French Defence Technological and Industrial Base (DTIB), which comprises more than 4,000 companies.
Similar efforts took place in the United Kingdom, where, in the same month, over 100 Labour MPs and peers signed an open letter urging banks and investment funds to ease what they described as „ill-considered anti-defence rules” restricting financing for the defence sector.
These rules are particularly restrictive in EU member states, where the sustainable finance framework applies, based on environmental, social, and governance (ESG) criteria. Due to legal, ethical, and reputational concerns, these regulations have for years been regarded by banks as one of the main investment barriers to financing certain categories of armaments.
The EU is now working to simplify and partially exempt these rules under the Defence Readiness Omnibus package. Brussels« priority is to ensure regulatory clarity and provide confidence among investors and financial institutions. This direction was reaffirmed in a recent Commission Notice, which states that financing the defence sector is „compatible” with the EU’s sustainable finance framework, is subject to „no limitations”, and in fact contributes to sustainable development by strengthening Europe’s resilience and security.
These efforts align with the EU’s flagship plan, ReArm Europe, which envisions allocating a total of €800 billion over four years for defence-related purposes. One of its key pillars — alongside the SAFE programme and direct government spending — is mobilising private capital.
Forging a public–financial–defence fusion
The central objective of these efforts is to create an environment in which banks and investors are both encouraged and safeguarded by the public sector, enabling them to effectively contribute to Europe’s defence effort. In this context, the mitigation of regulatory, credit, and reputational risks is crucial to allowing private capital to play a tangible role in the modernisation of Europe’s defence capabilities.
That said, private financing will not replace public defence spending, a limitation inherent to the sector’s monopsonic nature. However, a public–financial–defence fusion could well become the key to Europe’s rapid and efficient modernisation.