Magazine article American Banker

Bank of America Balks, Will Refuse California IOUs Starting Aug. 5

Magazine article American Banker

Bank of America Balks, Will Refuse California IOUs Starting Aug. 5

Article excerpt

LOS ANGELES -- Bank of America said last week that on Aug. 5 it will stop accepting the registered warrants, or IOUs, that California has been issuing to state workers during its current budget squeeze.

The action by the BankAmerica Corp. subsidiary, which underwrites many California state financings, could heighten pressure on state leaders to end their impasse over a fiscal 1993 budget, which was due July 1.

Other California commercial banks could further heighten that pressure by following Bank of America's lead. Wells Fargo & Co. and Union Bank of San Francisco, a Bank of Tokyo affiliate that is the state's fifth-largest, also said they would not take warrants dated after July 31. The IOUs must be presented at bank offices by Aug. 10.

The registered warrants are promissory notes with no specific maturity that are being issued to state employees and others instead of checks. Some political observers believe that state leaders have not incurred that constituents' wrath over the budget problem because no one is yet suffering from being unable to cash the IOUs.

Bank of America's action came after recent warnings by bankers that they could not keep cashing the IOUs indefinitely while the state fails to show tangible progress on a budget.

"California banks have gone out of their way to bail out the state," said Gray Davis, the state comptroller. "Now, the biggest bank in the state is saying, |Enough is enough.'"

Bank of America's announcement has no bearing on the state's $475 million of tax-exempt revenue-anticipation warrants sold in June. …

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