Interest Rate Arbitrage in Negative Yielding Currencies

In a world of negative interest rates and growing risk for asset price bubbles everyone is seeking new high yield/low risk opportunities. One might be based on the weird situation that banks pay deposit rates which are above the inter-bank lending rates. This offers a possibility of arbitrage in CHF and EUR especially for wealthy private investors with a sizeable bond or equity portfolio.

1. Idea
The idea is very simple. Get a loan with negative interest rates, use your bond or equity portfolio as collateral and deposit the capital that you get from the loan for an interest rate of zero. The result is that you’ll get interest for the loan (because of the negative interest rates) and you’ll get and pay nothing for the deposit. Ideally you even receive interest on your deposit and you can leverage this deal 10+ times and you will earn a high return with a low risk profile, but let’s see how the trade works.