Current regulation designed to divert lending away from companies seen as problematic under ESG aspects makes it hard for banks to use their deposits for loaning money to arms manufacturers.

France is considering revamping hurdles banks face when lending to the defence sector, after the financial services industry emerged as an obstacle to Europe’s efforts to rapidly boost its military capabilities.

Current regulation designed to divert lending away from companies seen as problematic under environmental, social and governance (ESG) aspects makes it hard for banks to use their deposits for loaning money to arms manufacturers, France Budget Minister Amélie de Montchalin said Sunday in a TV interview.  

“We could ask ourselves whether we should change these exclusion rules,” Montchalin said.

The comments highlight how Europe’s politicians, defence industry executives and senior bankers alike are calling for an urgent revamp of regulations and internal processes to make it easier for banks to quickly channel funds into arms manufacturers and military contractors.

That’s become necessary after the US under President Donald Trump has signaled a declining willingness to defend Europe against potential aggressors. 

The rapid turn of events has taken European banks by surprise. The industry has been accustomed to treating arms manufacturers as a reputational liability, thanks to rules designed to weed out high-risk clients or to discourage lending to sectors that clash with ESG metrics.

France’s Montchalin said one way to boost lending is by allowing banks to use the money clients keep in a popular regular savings account known as Livret A to make loans to the defence industry, provided clients agree. 

The barriers for now are “that in the name of corporate social responsibility principles, ESG basically, a certain number of financial players like French banks or insurers have excluded defence industries from their savings products”, Montchalin said.

French depositors were keeping EUR443 billion ($641.10 billion) in Livret A accounts at the end of January, according to statistics from La Caisse des Depots.

An Ipsos poll for La Tribune Dimanche, conducted Thursday, found that 68% of French participants were supportive of boosting the country’s defence budget.

Finance Minister Éric Lombard and defence Minister Sébastien Lecornu will host a meeting in Paris on March 20 with bankers, insurers and several representatives from the defence sector to discuss defence financing, Montchalin said in the interview.