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Adjustments: The Risk Rating Response to Pandemic-Drive Economic Trends

Learn how to bring adjustments into your risk rating system and which considerations might make sense for your institution. 

It is said that a rising tide lifts all boats. During the longest bull market in history that took place from March 2009 to March 2020, this was certainly true as most businesses were buoyed by the booming economy and seemingly endless expansion. Now, months into the COVID-19 pandemic-driven recession, everything has changed.

Previously, defaults were sporadic, and the performance of individual companies and industries was not as critical to monitor given the fact that such a high percentage of loans would make good at the end. Now, we see sectors like transportation, hospitality, oil & gas, and others struggling as big tech firms report record earnings. So, how do we rate credit risk in an environment where the economic recovery is expected to remain uneven and unpredictable?

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