Here is a new one for me. I have a large commercial customer that wants to deposit a very sizable amount into a CD for the purpose of borrowing against it, here is the catch he wants no interest so the loan interest rte will be only the 2% above and so he has no reportable income on the deposit. Is this something that can be done???

I can't think of a specific reason why you could not set the terms as you and the customer agree. But, if this is an individual (and I assume that it is, or else the loan and deposit interest would offset for tax purposes) wanting to complete this transaction, I have to seriously question his motivation. Are you certain this is kosher - no money laundering or government fraud going on?

You say that it's very sizable - sizable enough to impact your reported loan yields and deposit costs?

this would be for about 1 million. This customer is using this as part of his development loan.

I would talk to your A/L manager - 2% is not much of a spread on a million dollar loan.

Hard to beat 2% spread on a 0% risk-weighted asset.