Britain will not join Canada-led defence bank initiative 

Oct 26 (Reuters) - Britain will not join the Canada-led Defence, Security and Resilience Bank, in a setback to efforts to create the world's first global defence bank, according to a person familiar with the matter.

The two countries instead said on Sunday that they would develop a framework for cooperation between their respective defence-funding initiatives, establishing two distinct but complementary institutions to support each other on investment opportunities and strategic challenges.

"We have been working closely to consider how the Multilateral Defence Mechanism (MDM) and Defence, Security and Resilience Bank (DSRB) can best advance our shared objectives. We have agreed to develop a framework of cooperation that works in the interest of both institutions," the statement said. 

The two governments were unable to agree on key issues including the location of the headquarters of a joint institution, the level of joint procurement, lending to members, and the rules around new members joining in the future, a second person said.

The MDM will focus on accelerating defence investment, joint procurement through financing, and bringing together demand across NATO allies to reduce procurement costs, while the DSRB will complement it by supporting investment in defence industries and supply chains, focusing more on single sovereign lending, the person added. 

The DSRB has faced challenges securing support from larger European nations. Reuters was first to report in September last year that Britain had declined to join the project.

There were hopes Britain would reconsider its position under new Prime Minister Andy Burnham and his team, with the two countries holding talks on the topic recently. Germany had also declined to join. 

Britain and Canada said the MDM and DSRB will be designed to work in close partnership, so they can support each other on emerging industrial priorities, investment opportunities and strategic financing challenges.

AIMING TO RAISE BILLIONS

The DSRB has been aiming to raise around €100 billion ($112 billion) and use the money to lend at low cost to governments and contractors for defence projects. It will also offer guarantees for lenders financing smaller firms seen as riskier borrowers.

So far besides Canada, where the DSRB will be based, Albania, Belgium, Greece, Latvia, Luxembourg, Romania, Turkey and Ukraine have pledged their support to the bank.

Reuters previously reported that potential member countries had not joined because of concerns including whether the DSRB can offer cheaper financing than highly rated national governments as well as the amount of capital countries would need to commit, the bank's governance, and overlaps with existing initiatives.

Britain's Defence Secretary Wes Streeting had recently described the DSRB as a "really interesting and innovative mechanism" and said that he did not see the proposed defence bank and MDM as being in competition.

Britain previously declined to join, citing concerns over value for money. Reuters previously reported that Burnham discussed the DSRB alongside the MDM initiative with Canadian Prime Minister Mark Carney in July and with Luxembourg Prime Minister Luc Frieden during an August visit to Kyiv.

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(Reporting by Anusha Shah in Bengaluru, Nivedita Balu in Toronto, William Schomberg and Elizabeth Piper in London; Writing by Anousha Sakoui. Editing by Andrew Heavens, Chris Reese and Keith Weir)