Purpose
A host of studies have assessed the determinants of bank liquidity creation, highlighting the relevance of macroeconomic and microeconomic factors. However, whether and how social unrest impacts bank liquidity creation remains a moot issue. To inform this debate, this study aims to exploit bank-level data for Middle East and North Africa (MENA) countries covering the period 2010–2019 to assess the interlinkage between social unrest and bank liquidity creation.
Design/methodology/approach
In view of the staggered inception of social unrest across MENA countries, the author uses a difference-in-differences specification to tease out the causal impact.
Findings
The findings reveal that the Arab Spring improves liquidity creation after onboarding after confounding factors. This impact differs across conventional and Islamic banks and differs across asset side (market) and liability side (funding) liquidity creation. The evidence also underscores the positive real effects of such liquidity creation on real economic output.
Originality/value
This is one of the early studies exploiting a large sample of MENA banks to examine this issue in a systematic manner.