Why do banks fund illiquid, informationally sensitive assets with short-term, often demandable debt? We develop a model in which banks' reliance on short-term debt makes their assets more liquid. Because banks monitor and collect information about borrowers, adverse selection makes it costly for them to raise new funds against their assets. Short-term debt forces banks to seek external funds whenever creditors demand liquidity, disguising their motives for raising new funds and mitigating this adverse selection problem. This creates a novel synergy between the asset and liability sides of banks' balance sheets: the informational frictions created by lending are mitigated by their short-term liabilities. However, while in normal times, short-term debt creates a liquidity benefit, in crises, it can make banks' assets less liquid when creditors' refinancing decisions are informed. Our model provides a new mechanism through which capital requirements can reduce bank lending.