Sometimes a picture is worth a 1,000 words. So here is a virtual collage of what a liquidity crunch looks like...
First, the rate on 3-month T-Bills vs. 3-month LIBOR measured in spread. Read this as the amount of extra yield in 3-month LIBOR vs. Treasuries.
Next, Fed Funds target vs. 1-week LIBOR. Both are interbank rates, but one is manipulated and one isn't. I contend that the spike in 1-week LIBOR indicates how banks without access to Fed Funds could borrow. Notice this has normalized a bit.
Finally, the private reverse repo rate with Treasury collateral vs. Government Agency MBS as collateral. Effectively no credit risk in either. Why 60bps more to borrow using the later over the former?
What makes this a liquidity crunch rather than a credit repricing? The fact that there is little/no credit differential in the rates quoted here. And yet the spreads have moved dramatically.