This paper examines the relationship between competition in the banking industry and liquidity that banks provide. Using a panel dataset of commercial banks in 25 OECD countries during the period 2000-2010, we find that banks provide more liquidity as the banking industry becomes more concentrated. The result is robust even after controlling for endogeneity issues and after using the
Lerner index as a proxy of market power. In addition, large banks increase liquidity supply in the concentrated market, while small banks do not show significant results.
