How does public liquidity provision reshape shadow banks’ portfolios and interbank networks? We study this question using new data from Virginia state-bank examination reports around the creation of the Federal Reserve in 1913. After the Fed’s creation, nonmember “shadow” banks held fewer liquid assets, borrowed more from other banks, and shifted correspondent relationships away from national financial centers toward local partners. We develop a model in which indirect access to public liquidity weakens the value of private liquidity insurance, explaining these portfolio and network changes. Consistent with this mechanism, we document that during the 1921 recession, Fed member banks passed Federal Reserve liquidity to nonmembers, especially through rural links. We then use the model to quantify the trade-off between public liquidity provision and regulation, and to study its implications for financial stability and investments.