Liquidity creation is a core function of banks and an important economic service to the economy. This chapter discusses two distinct notions of bank liquidity creation developed in the theoretical literaturefunding liquidity creation and improved risk sharing for risk-averse depositors. It also examines the empirical literature on bank liquidity creation. The focus is on the economics of bank liquidity creation, both in the traditional relationship banking context and in the shadow-banking context. This chapter discusses related prudential regulation issues, pertaining mainly to capital requirements and liquidity requirements, as well. It provides a historical overview, starting in the early 1800s and ending with Basel III and the DoddFrank Act. It identifies open research questions regarding both capital requirements and liquidity requirements.