Franchise viability risk

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Liquidity risk - banking.

Franchise viability risk arises when a firm takes actions, despite having no legal obligation to do so, in order to preserve its reputation, and where these actions cause unforeseen liquidity outflows.

Failing to take these actions may damage the firm’s franchise, which could impede access to wholesale markets or cause significant outflows.

The associated outflows are uncertain before the event, as there is no associated contractual obligation.

An example is agreeing to requests from debt investors to buy back debt immediately, before its contractual maturity.

Sometimes abbreviated to franchise risk.

See also