Midterm results signal potential AI financing disruption, wave of distress

Financial institutions should brace for data center financing disruption and a growing patchwork of AI rules and regulations after Democrats take control of the House and Senate in the wake of the midterm election. The so-called “blue wave” of Nov. 3 makes it clear that “voters want controls in place that mitigate any sort of risks associated with artificial intelligence, which has not widely been proposed by Republicans or the president and his administration,” Peter Dugas , founder and chief executive of the Regulatory Intelligence Group , which helps FIs navigate regulations, told FinAi News . These controls include cybersecurity resilience, data privacy, model fairness and model risk management, he said. Additionally, the financing climate for AI and data centers is poised for a shakeup as Democrats voice concerns about AI-related asset bubbles, which are a “major concern” for the party, Dugas said. Death of tax credits? Despite the likelihood of President Donald Trump vetoing any legislation that would restrict data centers , Dugas said he expects some bipartisan agreement resulting in “more burdens being put on [developers] by not just the state governments but also potentially the federal government.” For example, many data centers that have already been built rely on tax credits and incentives to operate. “If you put federal or state rules in place that mitigate for that, that's going to affect the financing vehicles,” he said. “You've already seen some of the data centers themselves show financial stress because of those mitigants.” If more tax credits and other data center financing arrangements are revoked or disrupted, that could become a “big issue” that ignites an uptick in defaults and other signs of distress, he said. Hyperscalers Microsoft , Alphabet , Amazon and Meta received federal tax breaks of $18.7 billion, $18.4 billion, $17.4 billion and $13.7 billion, respectively, in 2025, according to the Institute on Taxation and Economic Policy , a non-profit tax policy group that describes itself as non-partisan. 10 states with notable data center tax breaks [caption id="attachment_57390507" align="aligncenter" width="658"] (ChatGPT)[/caption] Amid political change and growing concentration risk in mega data center projects, more lenders could begin to target smaller data centers for financing opportunities, Bernie Margulies , CEO of American Compute , which provides risk management and insurance solutions for GPU financing deals, told FinAi News . That’s because big data centers are political targets and smaller ones fly under the radar, he said. “I expect in 2027 that the long tail for data center projects will grow tremendously, while the larger buildouts slow down." — Bernie Margulies, CEO, American Compute State discrepancies Governorships were flipped to Democrat in states including Texas, Ohio, Iowa and Georgia. Democrats also gained full legislative control in Wisconsin, Pennsylvania and Minnesota, with some races still uncalled. States that flipped to Democratic control will likely enact stricter AI policies, meaning that FIs operating in multiple states will have to navigate a patchwork of AI rules and regulations in the absence of federal legislation, Dugas said. “States have really been the leads on regulating artificial intelligence,” he said. “The biggest challenge for financial institutions has been the fact that they're an end user of much of their artificial intelligence models. … They're going to increasingly have to mitigate risks associated with state legislation.” However, Dugas said overarching federal rules on AI could begin to take shape in the second half of 2027. Congressional investigations In 2027, FIs must keep a close eye on congressional investigations exploring the risks, challenges and capabilities of AI, Dugas said. Notably, California Rep. Maxine Waters , a Democrat who Dugas said is likely to become the next chair of the House Financial Services Committee, put out a request for information this year to learn more about AI-related risks. The request outlined concerns raised by congressional Democrats regarding AI, Dugas said. “That's likely going to be the vehicle in which they respond to legislation and congressional hearings that are going to be both on the financial services side as well as the model side of the policy portfolios,” he said. Actions taken by the House Financial Services Committee will be Dugas’ primary “guidepost” for monitoring AI policies and their potential effect on financial services. Register here for early-bird pricing for the FinAi Banking Summit, taking place March 1-2 in Denver. View the full event agenda here .

Midterm results signal potential AI financing disruption, wave of distress

Democrats took control of House, Senate in Nov. 3 midterms

Block forecasts first income from AI in Q4

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Midterm results signal potential AI financing disruption, wave of distress

Democrats took control of House, Senate in Nov. 3 midterms

Block forecasts first income from AI in Q4

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