This paper shows that the current interest rate-oriented monetary policy framework ifcombined with sophisticated interbank transactions a la Adrian and Shin (2009), can fosteror accelerate financial procyclicality since the central bank’s high-powered money can beused as a funding source for financial intermediaries. Interbank transactions that involvematurity transformations pave a silky way for the flow of high-powered money to end up aslending for the ultimate borrowers. This paper also provides some empirical evidence usingKorean financial data. In particular, we find that the growth of non-core liabilities, as aclose proxy for interbank liabilities, has substantial explanatory power for the growths ofcore assets, monetary base, and broad money. This paper explores the implications of thefindings in terms of the central bank’s responsibility for asset price misalignments andfinancial stability.