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Feds Say California IOUs Should Be Treated as GOs

SAN FRANCISCO — Federal bank and credit union regulators Wednesday issued an interagency statement guiding financial institutions on how to treat registered warrants from California.

The registered warrants — in essence IOUs issued by the state controller’s office because the state does not have enough cash to pay all its bills — should be treated as state general obligations from a risk-management standpoint, according to the interagency statement from the Federal Reserve Board of Governors, the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of Comptroller of the Currency, and the Office of Thrift Supervision.

“The state attorney general has opined that these warrants are valid and binding obligations of the state,” the statement said. “Because they share the same expected source of repayment, the warrants generally have the same credit quality characteristics as the state’s other general obligations.”

California began issuing registered warrants last Thursday. They are scheduled to be redeemed by Oct. 2 and pay 3.75% tax-free interest.

At least three national banks with comprehensive branch networks in the state — Wells Fargo, Bank of America, and JPMorgan Chase — have said they would accept the registered warrants from customers for deposit at face value, but only through Friday.

Several smaller banks, and many credit unions, have adopted more open-ended policies.

The full interagency statement is online at: http://www.occ.treas.gov/ftp/release/2009-81a.pdf

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