When French bank BNP Paribas quietly dropped its ban on financing ‘controversial weapons’ in September, it looked like a technical tweak. But far from semantics, it was a shift in how finance can serve strategy.

As Europe’s banking sector begins to re-align with the imperatives of rearmament, deterrence and economic statecraft, Australia should take note and develop mechanisms to mobilise finance for national security.

For years, banks treated defence as a reputational issue, as well as an environmental, social and governance risk, often lumping it with tobacco or fossil fuels as something to be managed at arm’s length. BNP Paribas’s prior policy, dating from 2010, explicitly prohibited involvement in ‘controversial weapons’, which broadly included: anti-personnel mines; cluster munitions; chemical, biological and nuclear weapons under treaties; and other ambiguous categories. That ban insulated the bank from reputational backlash but also narrowed its strategic role.

That era is ending. Russia’s war in Ukraine, China’s coercive trade tactics and the United States’ pressure on Europe to shoulder more of its defence burden have exposed the limits of moralistic restraint. Financial mobilisation is the new norm.

In 2025, BNP Paribas updated its defence and security sector policy to exclude only those weapons governed by international prohibitions—anti-personnel mines; cluster munitions; chemical, biological and nuclear weapons—or where human rights risk is severe. The bank can now finance everything else, including missiles, drones, dual-use electronic systems and support services, subject to due diligence and risk screening. The updated policy explicitly states the bank will support financing of defence firms primarily within NATO and especially within Europe.

This change signals that banks now see defence lending less as a reputational burden and more as a strategic necessity. It also signals that capital will follow strategy: banks are repositioning themselves to underwrite the defence industrial base.

This matters because finance isn’t neutral. The allocation of capital is a core instrument of modern statecraft. Banning defence finance is itself a policy, as is enabling it. By redrawing its exclusion lines, BNP Paribas implicitly acknowledges Europe is preparing for a long contest in which industrial resilience and finance are as important as battlefield readiness.

This is economic warfare by mobilisation. Just as China channels credit into semiconductors, green energy and naval shipbuilding, Western banks must now be agents of strategic direction. Russia, under sanctions, routes state resources to its war economy. What Europe is starting to do now is catch up.

But this shift doesn’t happen automatically. Banks must adjust risk models, set compliance frameworks and manage investor communication. Governments must enable that shift, through guarantees, procurement pipelines, regulatory clarity or de-risking mechanisms (such as tax or subsidy incentives).

The European Investment Bank (EIB) is loosening restrictions to fund dual-use projects and defence-adjacent infrastructure, such as border security, surveillance, mobility and logistics. In principle, it has removed the 50 percent civilian revenue requirement for dual-use projects, while still excluding financing for purely military items such as fighter jets or munitions. That shift aligns with the European Union’s broader ReArm Europe plan, which targets up to €800 billion in defence investment over four years. The EIB scheme is meant to back 100 percent of eligible security and defence projects, using Deutsche Bank as an intermediary.

Deutsche Bank is already moving from caution to active participation. It has established a cross-divisional ‘defence and infrastructure’ working group, and in June became the first bank to sign an agreement with the EIB to extend €500 million in intermediated liquidity support to small in the defence and security supply chain (enabling up to €1 billion in lending).

That suggests Deutsche Bank is not merely bracing for regulation risk but actively positioning itself as a conduit for defence finance in Europe. Other institutions beyond banks and the EIB—such as sovereign wealth funds, export credit agencies and national development bank—are also quietly adjusting norms and adapting.

There is some reporting that at least one other major European bank is contemplating expanding its defence financing policy to cover all conventional defence (including, for example, kinetic systems) while still excluding chemical, biological or nuclear weapons.

The result is a gradual redefinition of what responsible finance means. Defence is no longer a liability; it is essential infrastructure.

Australia faces a similar strategic bottleneck. We talk about sovereign capability, supply-chain resilience, AUKUS and greater defence industry, but we lack a doctrine for financial mobilisation. Local defence firms still struggle to get credit. Institutional investors often view exposure to defence as reputational risk.

Simply put, markets do not voluntarily align with national security. They must be persuaded, incentivised or regulated.

Concretely, Australia should:

—Develop a defence finance doctrine to define what is off-limits (for example weapons systems prohibited under treaties) and what is strategic but eligible.

—Use public policy tools to de-risk defence lending. These tools could include credit guarantees, co-investment vehicles and procurement pipelines.

—Engage banks and superannuation funds to reframe defence as an asset class of national resilience, not mere reputational liability.

—Consider an allied financial framework under AUKUS, or other partnerships, to align how banks in Australia, Britain and the US treat defence financing.

—Explore whether a regional defence investment bank or other such vehicle could pool capital to underwrite advanced projects, linking allied nations’ investment in defence infrastructure.

Australia should develop a civilian-led doctrine that mobilises finance for national security and deepen its coordination with allies, using the European experience as a benchmark. As others are already integrating banks and capital markets into defence strategy, Australia cannot afford to improvise while competitors move with intent.