Published: Friday, Jul. 03, 2009
Banks to accept the state’s IOUs
But under the condition that the budget will be resolved soon
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closeSeveral local financial institutions plan to accept IOUs from the state of California, with the expectation that legislators will soon resolve the budget crisis.
Wells Fargo, Bank of America, Paso Robles-based Heritage Oaks Bank, Rabobank, American Principle Bank in San Luis Obispo, San Luis Obispo’s Coast National Bank and The Golden 1 Credit Union, based in Sacramento, are among those that intend to take the registered warrants for deposit, many for a limited time.
Chase bank said it would accept IOUs until July 10, the Associated Press reported Thursday.
The warrants are a “promise to pay” in full, with interest, by the state treasurer on or after Oct. 1, if enough cash is available.
“Banks are concerned about the state of California’s current situation,’’ said Steven Harding, regional president of Rabobank. “But we expect that something will happen. There’s no time limit. That’s not to say that we won’t be assessing our policy on this on a regular basis as new things develop.”
Heritage Oaks Bank announced Wednesday that it would take the warrants under certain conditions, doing so only for businesses or clients who have had an account open for at least a year.
Larry Ward, the bank’s president and CEO, said in a statement that he was “disappointed” legislators were unable to pass a budget on time but said the bank would help clients “in whatever way we can to ease the burden imposed by the state Legislature.”
Other financial institutions are reluctant to accept them, noting there’s no guarantee they will receive payment from the state.
Mission Community Bank is evaluating it, said Anita Robinson, president and CEO of the San Luis Obispo-based bank.
“We don’t expect a lot of our customers, if any, to have warrants,’’ she said. “We’ve kind of looked at who they will be issuing to, and we don’t think it will be a big issue for us. We will take a look at it on a case-by-case basis. If we have customers that have them, and they need help, we will work with them on it.”
Founders Community Bank is awaiting direction from banking regulators as to the best course of action, said Tom Sherman, president and CEO of the San Luis Obispo-based bank.
Sherman added, though, that it’s unlikely the bank will accept them. Banks, he said, are already facing liquidity concerns and could end up holding millions of dollars of state IOUs.
“There are many unknowns,’’ Sherman said.
“It’s hard to say how many will be openly issued, and this is a non-earning asset,” he noted, “so any bank that accepts it would take it, hold onto it, knowing that somewhere down the road they might get a modest return on that. It’s a real gamble.”
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