The European Central Bank (ECB) supervisory arm is weighing a review of bank lending to data centres to assess risks arising from market sentiment around artificial intelligence (AI) and from swings in asset valuations. According to Bloomberg, ECB officials have raised the idea during internal discussions and in meetings with supervised banks.
Regulatory concerns are driven by several factors: a higher interest-rate environment and growing social opposition to some data-centre developments could put pressure on this rapidly expanding lending area. The planned review could include on-site inspections that examine how banks account for future cash flows, value collateral backing data-centre loans, and provision for potential defaults.
Insiders say the exercise would not be as comprehensive as the ECB’s leveraged-finance review undertaken a few years ago, which caused significant tension across the sector. The ECB declined to comment on the report.
The issue gained added prominence after volatility in markets following this week’s U.S. midterm elections: the Nasdaq suffered a $2.3 trillion sell-off on Thursday as investors worried that Democratic wins in both chambers of Congress could slow AI development. That market reaction has refocused attention on risks linked to AI-related assets and their financing.
Banks and investors are already taking steps to reduce exposures tied to data-centre financing. Financial institutions are using direct loan sales, significant risk-transfer transactions (SRTs), credit insurance and derivatives to offload credit risk. Bond-market investors are also demanding higher risk premia for AI-related assets: for example, Alphabet this week raised €6 billion in a euro bond issue but had to offer notably higher yields than on its May deal.
The European Banking Authority (EBA) chair said last month that the impact of a possible AI-market collapse on European banks would be limited, noting that less than 4 percent of EU banks’ total exposures are directed to the whole information and communications technology (ICT) sector. At the same time, consultancy McKinsey & Company projects that global data-centre capital expenditures could reach $6.7 trillion by 2030, which—despite recent slowdowns—would significantly increase demand for lending.
Regulators’ prospective checks aim to map and mitigate banks’ exposures in a fast-growing and potentially volatile segment, while banks and investors pursue a variety of measures to limit their risk exposure.
