Through-the-cycle
From Open Risk Manual
Definition
Through-the-cycle (TTC) is a technical characterization ( design choice) of a Credit Rating System. Through-the-cycle ratings aim to evaluate the Credit Risk of a borrower by taking into account only permanent (static, slowly varying) characteristics.
Through-the-cycle ratings do not react to changes of the borrower's current economic situation but only to changes of their "permanent" attributes.
Issues and Challenges
- While the essence of the through-the-cycle characterisation is valid, the "cycle" terminology can be misleading, implying regular oscillatory economic dynamics.
- The inclusion of some dynamic information into a TTC rating system produces various hybrids which may have unclear response to changing conditions.
- The inclusion of distinct portfolio segments with differing type of rating systems into the same Rating Scale produces an overall framework with undefined dynamic characteristics