This paper develops a theory of multiple maturity segments on the interbank market based on banks' liquidity management and persistence of liquidity shocks. The developed framework is embedded in a micro-founded network model which features interbank funding as This paper develops a theory of multiple maturity segments on the interbank market based on banks' liquidity management and persistence of liquidity shocks. The developed framework is embedded in a micro-founded network model which features interbank funding as an over-the-counter phenomenon and replicates financial system phenomena of network formation, monetary policy transmission, and endogenous money creation. This setup is used to shed light on the purpose of the interbank market and its role for allocation and stability in the financial system. I show that the extent of interbank funding depends on persistence and magnitude of liquidity shocks as well as banks liquidity requirement. An optimal policy analysis, in which the policymaker faces a trade-off between credit supply and financial fragility, provides evidence that an efficient interbank market though being a potential channel of contagion allows for considerable gains in economic activity.