If you look at most big UK banks you will find £500 bn – £1 trillion of amounts representing assets and liabilities from derivatives and associated collateral postings. Payments to post collateral and settle these contracts are made through CHAPS and generally on a gross basis. If a bank enters into a collateralised swap trade with another bank and hedges its position in another trade with a third bank, then the total movements of collateral on the two trades will far exceed its net value at risk. You ghave to say this would likely kill most sterling settled derivatives.

To Mr Murphy et al, I’m sure there are two solutions to this problem:
1. Increase the rate
2. Accuse (or even prosecute) everyone who doesn’t transfer their money via CHAPS, including those who just don’t transfer any money at all, of tax evasion.

OK, but without interbank lending that means that each bank must ensure it has enough cash lying around to cover eventualities. This means banks with more cash than they need cannot lend it to banks that are short of cash (a straight “gain from trade” situation I’d have thought). I’m not on solid ground here, but I’d have thought the volatility in daily cash requirements is fairly high, even if you are just taking deposits and making loans to individuals and firms.

Presumably, it boils down to reducing the efficiency of banking by making them hold large buffer stocks of cash will just mean they either charge more for loans and / or pay less to savers … another tax incidence argument.

I suppose there’s an argument this might be a price worth paying for greater stability in the banking system …. I’m not immediately sure how to think about that. If banks didn’t do short-term interbank lending, would the system be a lot safer?

Let me try this again:

Bank days * daily volume:
252*£22bn = £5,544bn

0.05% thereof = 2.7720bn

And the transfers would be to borrower and back to lender:
Total = £5.544 bn (if you don’t count transfers into and out of the BoE.)

High costs = less profits = less tax receipts, so isn’t the treasury robbing itself here anyway?

And, the man cannot count either. Here is my calculation, using this link: http://www.docstoc.com/docs/10683256/%E2%80%98The–relationship-between-the-overnight-interbank-unsecured-loan-market

Banking days: 252
Daily turnover: 22bn
total: 3344bn
0.05% thereof: 167.2bn

(also, 0.05% of 2m = 100k, not 1k…)

How about a levy on stupid ideas instead? Cheaper, and a lot more popular.

Cornucopia count for today: 360bn+ 37bn = 397bn, or, using my calculation: 527.2bn. Gushing!