The Reuters piece covers the DSRB, a new institution Canada's Mark Carney is trying to start up to help allied countries finance budget, and it's a case study in how hard it is to build a cooperative lender from scratch.
The plan is to raise around €100 billion, split between €20 billion in paid-in capital and €80 billion in callable capital, then lend cheaply to governments and defence contractors while guaranteeing loans for smaller, riskier suppliers. So far, it's only pulled in about €5 billion in commitments, with Canada as host and a mixed assortment of mostly smaller states (Albania, Belgium, Greece, Latvia, Luxembourg, Romania, Turkey, Ukraine) on board.
The bigger economies are holding back for practical reasons; some officials doubt the DSRB can actually beat the borrowing costs their own highly rated governments already get, which undercuts the whole pitch. Add in problematic public finances, unresolved governance questions, and overlap with programmes like the EU's SAFE fund, and you get a coordination problem where everyone likes the idea in theory, but nobody wants to move first.
What stood out to me was that a dozen banks, including JPMorgan and Deutsche Bank, have already put in $10 million in funding and services just to help set it up, hoping on fee income later if it becomes a real AAA institution. It puts a name to something I've read about but never watched play out: sovereign credit risk pricing in real time.
The DSRB's core problem is that AAA-rated countries can already borrow more cheaply than the bank could ever offer them, so its real customers will end up being the lower-rated members who can't get that pricing on their own, the same logic behind why the IMF or World Bank exists.
I want to look at what credit rating the DSRB ends up targeting and see what that tells you about its actual client base.