Europe’s biggest development bank is sitting on €200 billion

The world’s largest multilateral development bank is holding roughly €200 billion ($232 billion) in unused lending capacity, according to a new analysis. The findings by Stephen Paduano, a postdoctoral researcher fellow at Oxford University and former U.S. Treasury official, suggest that the European Investment Bank — which is fully owned by the European Union’s member states — could dramatically scale up its operations both within and beyond Europe without losing its AAA credit rating, but remains constrained by internal conservatism and rigid guarantee policies. A high credit rating allows banks to borrow at very low interest rates and therefore lend below market rates as well. The analysis comes amid global efforts to push MDBs to stretch their balance sheets. Beyond the EIB, the research shows that many other MDBs hold vast reserves that they could safely deploy. The EIB’s ratios governing its reserves and ability to withstand shock are much higher than they could be, Paduano said. That means it has around €58.5 billion ($67 billion) in excess cash — money that could, in theory, be deployed tomorrow with no change to the bank’s risk position. “MDBs have the theoretical capacity to lend more, and there’s been a victory lap around that, but are they actually doing it? Are they making use of that excess headroom?” he told Devex. Paduano has written extensively on the potential for banks to lend more and plans to analyze the lending capacity of all the MDBs. The bank’s conservatism is a strength for financial reviews, but it could mean they are holding back during a period when MDBs are being asked to step up. An S&P report from February, which was positive for the strength of the EIB’s financial position, pointed out that the bank has a “conservative risk appetite.” Just last week, S&P released new guidance that could allow MDBs to significantly increase their balance sheets without losing their ratings. A spokesperson for EIB told Devex that the institution has plans to lend more. “The Council of the European Union amended the EIB’s statute in March 2025,” a spokesperson said. “This has allowed the EIB Group to revise its new signatures target to a record €100 billion target for 2025.” They added that the impact will appear gradually on EIB’s balance sheet and that an increased use of guarantees, which aren’t recorded, also reduces the lending amount. Despite the higher ceiling, EIB said it will still prioritize its AAA credit rating, capital base, and financial stability. A conservative bank in a crisis decade The EIB’s caution comes during a year when European governments are cutting back on international aid commitments. Paduano’s preliminary analysis suggests that other multilateral lenders — including the International Finance Corporation, the World Bank’s private-sector arm — also hold far more cash than needed to keep their high rating. IFC’s liquidity coverage ratio stands at 81% against a 45% requirement, amounting to roughly $17 billion in excess cash. Chris Humphrey, a senior research associate at ODI Global who helped draft the G20’s Capital Adequacy Framework progress reports, said the EIB’s conservative approach is emblematic of a wider challenge among MDBs. A G20 report covered by Devex in 2022 showed that development banks could move hundreds of billions of dollars in additional lending to lower-income countries if they took on more risk. The report argued that a series of reforms could push new lending out the door in as little as a year. “The problem with development banks is that they don’t have any regulator,” Humphrey told Devex. “De facto, the rating agencies have turned into regulators for the MDBs, and the rating agencies have rather idiosyncratic methodologies for evaluating MDBs.” While the new S&P Global Ratings guidance could be the start to a shift throughout the industry, it will take time to scale up lending if the other agencies follow suit. Moody’s signaled that it could reassess its MDB ratings, but the other major ratings agency, Fitch, updated its methodology in 2024 and is unlikely to revisit it in the near future. Humphrey said the question of how much MDBs can safely do while maintaining their AAA status has become central to ongoing reform efforts. “It does seem like the EIB has an awful lot of room underneath the AAA rating,” he said. “Why they’re not using it? I don’t know. But it’s clear they could be doing more.” While the AAA rating is essential for public sector MDBs, Humphrey said that “their loan books, especially the public sector lending MDBs, are really, really strong. And on top of that, they have callable capital — guaranteed capital from governments to back them up if all else fails. That should give the markets an awful lot of comfort.”