Banks call for ‘political mandate’ to bolster European defence
The banking industry has issued a rallying call for a “political mandate” from the UK and EU in a bid to get regulators to open the taps to a fresh flood of defence financing.
A new report from UK Finance – which represents the nation’s financial services giants from Lloyds to Revolut – has called for politicians to avoid using financial regulations as “proxies for broader political debates” and instead accept each other’s regulatory standards as a means to allow banks to back vital defence funding.
“Europe’s geopolitical and economic landscape has changed significantly, and with it comes a real opportunity to reset the UK-EU relationship in financial services,” the report argues.
It calls for a joint UK-EU defence financing task force to be established under the Joint Regulatory Forum, which serves to facilitate regulatory cooperation in financial services between the European Commission and Treasury.
This body would be tasked with drawing up proposals to dismantle cross-border lending barriers, explicitly targeting Article 21c of the EU’s Capital Requirements Directive.
The report said this particular barrier – which blocks corporate lending from the UK into the EU’s defence sector – “significantly inhibits the efficient flow of investment from the UK” at a time when the “EU needs to leverage every available source of capital to meet its security needs”.
Fears of a drastic military escalation in the region have spiked since Russia’s invasion of Ukraine in 2022. The UK has committed up to £21.8bn to support Ukraine, including £13bn in military support and £5.3bn in economic assistance. Meanwhile, the EU’s member states have collectively mobilised over €200bn.
Banks call for ‘political will’
“What is needed most is political will to match the economic logic of collaboration,” the report states.
“Many of the mechanisms already exist… what is missing is the political mandate to use them ambitiously.”
The EU and UK have each laid out parallel ambitions to accelerate defence readiness, including the EU’s Security Action for Europe and the UK Ministry of Defence’s 2025 Defence Industrial Strategy.
But in the UK, efforts have stalled to produce an official Defence Investment Plan after it was originally meant to drop in Autumn 2025.
Prime Minister Sir Keir Starmer is reported to be weighing up spending cuts across government departments in a bid to scramble together the funding for a plan.
The UK Finance report points to regulatory roadblocks as preventing both the UK and EU from working together on their shared plans.
“Access to the UK market delivers clear benefits for EU businesses,” the report said, adding that the UK’s capital markets were twice as deep as the EU’s.
A report from Mario Draghi and Enrico Letta – two former Italian Prime Ministers who have become leading voices for economic reform in the EU – estimated the 27-state bloc faces a minimum annual investment gap of €750bn to €800bn to meet its defence and energy transition goals.