Bank of America Corporation (BAC) and Wells Fargo & Co. (WFC) said on Wednesday that they will start accepting California state-issued IOUs from customers as deposit, which both banks had stopped accepting in early July.
According to the State Treasurer, these actions by Bank of America and Wells Fargo would make it easier for many people and businesses to deposit IOUs.
To conserve declining cash during its recent budget crisis, the state had issued the IOUs, or registered warrants, in July at a coupon rate of 3.75%. California started issuing IOUs to taxpayers, vendors and local governments on July 2. Through Monday, the state had issued 457,238 IOUs totaling more than $2.37 billion.
Banks, which had first refused to take part in the delayed payouts, began to participate once California assured that it would start redeeming the warrants earlier than anticipated.
Wells Fargo will start accepting IOUs on September 4. This will be the first day of redeeming IOUs by the state. Wells would credit interest owed on the IOUs to customers’ accounts until September 30 and it will not credit interest that comes to less than $5. Though the company will accept IOUs after September 30, no interest will be paid.
Bank of America will follow Wells and begin accepting state-issued IOUs on September 9. It will offer this option through October 9, and will also advise customers how they can redeem the papers directly with the State Treasurer’s Office.
Last week, JPMorgan Chase & Co. (JPM) purchased $1.5 billion of California’s short-term, “interim” revenue anticipation notes according to a lending agreement with the state. The amount was provided to the state to help it pay some of its recently issued IOUs during the budget crisis.
During the period of September 21-23, California plans to sell $10.5 billion of so-called revenue anticipation notes (RANs) to raise money for the state government’s cash-flow needs.
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