Central bank balance sheet expansion is financed by commercial banks. It involves not just a substitution of liquid central bank reserves for other assets held by commercial banks, but also a counterpart alteration in commercial bank liabilities, such as in short-term deposits issued to finance reserves and in off-balance-sheet encumbrances pledged against reserves, which are also claims on liquidity. In ordinary times, when these claims are not called on, central bank balance sheet expansion will typically enhance the net availability of liquidity to the system. However, in times of stress when these offsetting claims on liquidity are exercised, the demand for liquidity can be significantly more. Furthermore, liquid commercial banks, desiring to maintain unimpeachable balance sheets, may provide only limited re-intermediation of liquidity and contribute significantly to liquidity shortages. Commercial banks do not fully internalize prospective stress ex ante or take sufficient steps to avoid it. Consequently, central bank balance sheet expansion need not eliminate episodes of stress; it may even exacerbate them. This may also attenuate any positive effects of central bank balance sheet expansion on economic activity.