Being too restrictive in granting liquidity can cause a spark to turn into a fire. Granting liquidity too liberally, on the other hand, and propping up institutions without sustainable business models, may also mean that the water used to extinguish the fire ends up causing more damage than the fire itself.
This is all the more relevant as it is hard to determine ex ante whether an institution is illiquid or insolvent. By the same token, another unconventional policy comes with risks attached, too. I am talking about the large-scale purchases of sovereign debt which have been deployed by many central banks in response to the crisis.