Rating System Cyclicality
Rating System Cyclicality refers to characteristics of a Credit Rating System with respect to it dynamic response to evolving economic (and thus credit conditions).
Point in Time System Behaviour
A fully cyclical rating system or ‘Point-in-time’ (PiT) would see an economic downturn picked up through migration of exposures to lower rating grades and therefore no increase in default rate within a grade.
Through the Cycle System Behaviour
At the other extreme a non-cyclical or ‘Through-the-cycle’ (TtC) rating system does not respond to an economic downturn with grade migration, but the default rate within a grade increases instead.
Assessment of Cyclicality
- BOE, Supervisory Statement SS11/13, June 2017