Banks firm: No IOUs after Friday
Silicon Valley / San Jose Business Journal - by William-Arthur Haynes
The region’s biggest banks are standing firm that they will not accept state-issued IOUs beyond close of business Friday.
Instead those banks -- Bank of America, Wells Fargo N.A., JP Morgan Chase and Citibank -- are playing power broker, saying that continuing to accept the so-called registered warrants are a cheap borrowing vehicle for the state that could in fact work to prolong an impasse.
“I can confirm that we will not be accepting registered warrants after Friday, July 10, for several reasons,” said Bank of America spokeswoman Britney Sheehan.
The time limit, she said, is based the bank’s 1992 experience when California last issued IOUs.
“The longer the registered warrants were accepted, the longer it took the legislature to resolve the matter,” Sheehan said. “We do not want our acceptance of registered warrants to deter the state from reaching a budget agreement as soon as possible.”
Since July 2 the State Controller’s office has issued 101,930 IOUs worth $389.2 million through Thursday in personal and corporate income tax warrants, travel reimbursements to state employees, and payments to health care programs, state vendors, legislative per diems and court appointed attorneys.
In the first few days, most of the IOUs went to personal and corporate income tax payments. The protracted impasse is beginning to have a broader impact, said Controller’s Office spokesman Jacob Roper.
“That’s the unfortunate thing about having to issue these,” he said.
Big bank customers might be stuck with paper until the Oct. 2 maturation. While not all banks have set a deadline on honoring IOUs, institutions such as Fremont Bank, City National Bank, Addison Avenue Federal Credit Union and Meriwest Credit Union have explicitly said they would only honor warrants held by “existing” customer -- some with additional caveats.
Fremont Bank and Meriwest, for instance, have instituted a $5,000 cap per customer.
“We have to think about what if the state doesn’t pay. I’m sure that every business is out there thinking that,” said Meriwest spokesman Greg Meyer. “We’re just protecting ourself from a loss.”
San Jose-based Bridge Bank imposed an internal aggregate cap of $2 million, a sum Chief Financial Officer Tom Sa said isn’t likely to be reached even if the impasse lasts through August.
“We’re not going to inconvenience our clients but we are going to visit this on a periodic basis,” Sa said. “All this does is a allow us to pause and see if we’re still comfortable with this. We have a very few clients who we think will be impacted, so we think our volumes will be very manageable.”
The bottom line is the banks are more critical of the operating environment for the state and trying to pressure California to get its fiscal house in order.
Wells Fargo spokesman Chris Hammond said the San Francisco bank simply can’t accept the IOUs indefinitely and was reluctant to accept them in the first place, but had to strike a balance between the gravity of the situation and the needs of its customers.
“The State of California -- just like any household or business -- has to be responsible for living within its means,” Hammond said. “Banks are not and cannot be the solution to California’s budget problems.”
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"Banks are not and cannot be the solution to California’s budget problems"
But the taxpayer can be the solution to Bank's budget problems.
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