ECB eyes spot checks on banks' data-center loans

The European Central Bank is circling a hot corner of bank balance sheets: data-center loans. According to Bloomberg News, citing people familiar with the matter, the ECB is considering a review of bank lending tied to data centers as it sizes up risks from shifting AI sentiment and valuations. Senior officials have already floated the idea internally and with the banks they supervise.

Global regulators are watching banks' AI exposure more closely, and the worry is concrete. Higher interest rates and mounting local opposition to data-center development could squeeze an area where lending has ballooned fast. If the appetite that fueled the buildout cools, lenders holding the paper could feel it.

The review could get hands-on. One person said it may include on-site inspections examining how banks account for future cash flows and collateral valuations, plus how they're bracing for possible defaults. That's the guts of the question: are these loans valued on dreams or on durable cash?

Any examination would be narrower than the ECB's leveraged finance review from several years ago, a second person said. That earlier push caused friction with banks, and officials appear keen not to replay it at full volume. The exact approach for data centers and broader AI risk hasn't been finalized, the person added.

The people asked not to be named discussing the deliberations, and the ECB declined to comment. So for now it's a plan on the table, not a policy in force. Banks with big data-center books will be reading the tea leaves closely.

Nothing is locked in yet, which leaves lenders and developers guessing about the scope and timing. The signal, though, is clear enough: the ECB wants to know how much of the AI boom is sitting on its banks' books, and what happens if the boom cools.