John B. Taylor and John C. Williams write,

the spread on August 9 was 25 basis points above the pre-August 9, 2007 average. That is 7 times the standard deviation before August 9—more than a 6-sigma event. The mean through March 20 was 16 standard deviations above the old mean, which under normality would have been an extraordinarily improbable event.

The spread to which they are referring is the London Inter-bank Borrowing Rate (LIBOR) over what they call the Overnight Indexed Swap rate–think of it as the Federal Funds rate. This large spread, and similar spreads of historically low-risk assets relative to Treasuries, are the essence of the credit crunch that the Fed is trying to solve with novel balance sheet moves, such as the Term Auction Facility (TAF). On the latter, the authors write,

The model has two implications. First is that counterparty risk is a key factor in explaining the spread between the Libor rate and the OIS rate, and second is that the TAF should not have an effect on the spread. Since the TAF does not affect total liquidity, expectations of future overnight rates, or counterparty risk, the model implies that it will not affect the spread. Our simple econometric tests support both of those implications of our model.

The Fed is very big in the eyes of journalists. But in the context of world markets, the Fed may be too small to affect credit spreads.