US Bancorp Backs California IOUs

US Bancorp (USB) on Friday said it will start accepting California state-issued IOUs or registered warrants from customers as deposit from Sept. 8. It will receive IOUs till the close of business on Friday, Oct. 9 and credit interest owed on the IOUs to customers’ accounts within 30 days of the deposit.

The IOUs will only be accepted into accounts opened before Aug. 31, 2009 and third-party registered warrants will not be accepted. This accommodation for clients will not include correspondent banks, money service businesses or any client engaged in purchasing or consolidating registered warrants for deposit. The bank will also advise customers on redeeming the papers directly with the State Treasurer’s Office.

Last week, Bank of America (BAC) and Wells Fargo (WFC) said they will also start accepting the warrants, after discontinuing the practice in early July. These actions by three major banks would make it easier for individuals and businesses to deposit IOUs.

To conserve declining cash during its recent budget crisis, the state of California had issued the IOUs, or registered warrants, at a coupon rate of 3.75% to taxpayers, vendors and local governments on July 2. Through Aug. 31, the state issued 457,238 IOUs worth more than $2.37 billion.

At first, banks had refused to take part in the delayed payouts but began participating once California assured to start redeeming the warrants earlier than anticipated.

Between Sept. 21-23, California plans to sell $10.5 billion professed revenue anticipation notes (RANs) to raise money for the state government’s cash-flow needs.

Recently, JPMorgan Chase & Co. (JPM) bought $1.5 billion of California’s short-term, “interim” revenue anticipation notes in terms of a lending agreement with the state. The amount will help the state to make timely interest payments.

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