The rapid construction of new AI data centers, fueled by billions in borrowed capital, is becoming a significant stress test for major banks worldwide. Leading financial institutions like JPMorgan and Morgan Stanley are now actively seeking ways to offload these escalating credit risks to other investors.
According to the Financial Times, major banks including JPMorgan Chase, Morgan Stanley, and SMBC are exploring mechanisms to transfer risks associated with AI data center financing. The sheer volume of loans for new data centers has grown to such an extent that individual institutions are hitting their internal limits for risk concentration, leading to what experts describe as banks "choking" on the numbers.
A notable example highlighting the scale of the challenge involves a $38 billion loan package designed to finance data centers in Texas and Wisconsin linked to Oracle. The Financial Times reports that JPMorgan and MUFG have spent months attempting to distribute portions of these loans more broadly across the market. Some banks even reportedly tried to sell these loans at a discount to non-bank buyers. Oracle itself had previously raised $18 billion through bond offerings to support its infrastructure.
To mitigate their exposure, banks are pursuing loan sales and employing "significant risk transfers" (SRT). Under an SRT, the loan technically remains on the bank's balance sheet, but a portion of the default risk is transferred to credit funds, insurers, or other investors in exchange for a return.
Matthew Moniot of the Man Group underscored the issue in the Financial Times, stating that the sums are so large that banks quickly begin to "choke." Frank Benhamou of Cheyne Capital views these deals as inherently riskier than typical risk transfers. His concerns stem from the limited number of operators, the heavy concentration of loans, and the inherent risks of construction projects, which can fail or incur costs far exceeding initial plans.
Adding another layer of complexity, financial uncertainty is compounded by political pushback. In Maine, for instance, the state legislature passed LD 307, a moratorium on data centers with capacities of 20 megawatts or more, slated to run until November 1, 2027. The proposed law also intended to establish a council to evaluate the impacts on electricity customers, the grid, the environment, and the local economy.
However, Governor Janet Mills vetoed the bill on April 24, 2026, arguing that it would have blocked a $550 million project at the site of the former Androscoggin paper mill in Jay. Governor Mills projected the project would generate over 800 construction jobs, at least 100 permanent positions, and increased tax revenue. The veto was sustained on April 29, 2026. Instead of the legislation, Mills signed an executive order establishing a 15-member advisory council tasked with delivering recommendations for managing large-scale data centers in Maine by January 2027.