A through-the-cycle process requires assessment of the borrower’s risk ness based on a worst-case scenario, i.e. the bottom of an economic/business cycle. In this case, a borrower rating would tend to stay the same over the course of an economic cycle unless the borrower experiences a major unexpected shock to its perceived long-term condition or the original “worst” case scenario used to rate the borrower proves to have been too optimistic.
B3.2
Similar to point-in-time ratings, through-the-cycle ratings also change from year to year to reflect changes in borrowers’ circumstances. However, year-to-year transitions in through-the-cycle ratings will be less influenced by changes in the actual economic environment as this approach abstracts from the immediate economic circumstances and considers the implications of hypothetical stressed circumstances.
