The Term Auction Facility’s Effectiveness in the Financial Crisis of 2007–09 - Economic Letter, May 2010 - FRB Dallas

The TAF and other lending facilities established during the crisis were an experiment that proved effective in addressing severe financial turbulence. In the second half of 2007, financial turmoil swept over the U.s. and other major economies. Triggered by a subprime mortgage meltdown, the crisis quickly spread to other major financial markets and precipitated the worst economic downturn since the Great depression. although financial and economic conditions have improved substantially, the wrenching episode's effects are still with us. during the crisis, financial markets experienced tremendous strains, and the cost of short-term funding rose sharply. The gap between the three-month unsecured london interbank offered rate (libor) and the overnight indexed swap (oIs) rate is frequently used as a measure of tensions in interbank money markets. as the crisis began in early august, this spread jumped from less than 0.1 percentage point to almost 1 percentage point within a month. at the crisis's peak in september 2008—just after the collapse of lehman Brothers