The article explores how monetary policy affects liquidity risk in the banking system. By using a model of financial intermediation, the researchers investigate the impact of negative interest rates on bank reserves, positive interest rates on reserves, and the size of the central bank's balance sheet. They find that negative interest rates can hinder financial intermediation, but boost aggregate demand. Paying positive interest on reserves can improve the economy's efficiency, and the central bank can influence the term structure of interest rates by adjusting the size of its balance sheet.