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In this paper, I develop a dynamic macroeconomic model of financial intermediation in which short-term funding is subject to liquidity risk. In the model economy I develop, financial intermediaries provide both settlement services to households and financial intermediary services between households and non-financial firms. Because the provision of settlement services exposes them to random withdrawal shocks on their short-term liabilities, financial intermediaries demand bank reserves, which are liquid assets whose quantity supplied and return depend on monetary policy. I use this model economy to study the real effects of targeting the width of the corridor between the official lending and borrowing rates of bank reserves. I obtain that narrower interest-rate corridors of bank reserves increase liquidity ratios when financial intermediaries on aggregate are net lenders of bank reserves, while decrease liquidity ratios when the opposite happens. I also obtain that narrower interest-rate corridors always increase leverage multiples.
