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The feasibility of through-the-cycle ratings

Karlo Kauko

No 14/2010, Research Discussion Papers from Bank of Finland

Abstract: It has been proposed that the potential procyclicality of Basel II could be alleviated by using through-the-cycle (TTC) ratings in IRBA models. A TTC rating would be based on the structural component of the debtor s credit risk ignoring cyclical fluctuations. This paper tests for the existence of such fluctuations in corporate sector credit risk and finds vietually no evidence for their existence at the company level. It is not possible to assign satisfactory TTC ratings to debtors if there are no cyclical variations to be filtered out. Keywords: through-the-cycle rating, credit risk, procyclicality JEL classification numbers: G21, G33, L16

JEL-codes: G21 G33 L16 (search for similar items in EconPapers)
Date: 2010-05-05
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