ECB Weighs Review of Euro-Area Banks' Data Centre Lending Over AI Valuation Risks

Senior ECB officials have discussed the idea internally and with the banks they supervise, Bloomberg reported on Friday, citing people familiar with the matter who asked not to be identified. The approach to data centres, and to AI risk more broadly, has not been finalised. The ECB declined to comment.

The concern is that lending to data centres has grown quickly at a time when higher interest rates and mounting local opposition to new projects could put pressure on borrowers. A review would take the ECB beyond collecting information and into examining how individual banks have priced and protected these loans.

One of the people said a review could involve on-site inspections of how banks project future cash flows from data centre projects, how they value the collateral behind the loans and how they set aside provisions for possible defaults. A second person said any examination would be narrower than the ECB's review of leveraged finance several years ago, which caused friction between supervisors and the banks.

The ECB has been looking at the issue for most of the year. In February, Bloomberg reported that the Frankfurt-based supervisor was asking a small number of lenders for more detail on their lending to areas including data centres. The Bank of England has also been examining UK lenders' exposure to the sector.

The discussions come in a week when technology and chip shares sold off sharply in the US, Asia and Europe, as investors weighed the prospect of tighter US rules on AI and data centre construction after the midterm elections.

No timetable for a decision has been reported. If the ECB goes ahead, the first test for banks is likely to be whether the cash flow assumptions behind their data centre loans hold up under supervisors' scrutiny.