By Sarah N. Lynch and Meena Thiruvengadam Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- The Federal Reserve warned state contractors, local governments and other potential recipients on Thursday to consult with their banks before depositing warrants issued by California.
The Fed's warning came in reaction to an earlier announcement by California's top accountant, who said the state would start issuing the warrants, or IOUs, to thousands of creditors as early as Thursday.
The $3.4 billion in IOUs are being sent out after state lawmakers failed to come to an agreement on a way to close the massive budget deficit. Issuing IOUs will pose major costs to the state, which will then have to repay those them with millions of dollars in interest.
But the Fed said customers need to consult with their banks before depositing any registered warrants and ask a few important questions first.
"Will the bank accept the registered warrants for deposit?" the Fed asked. "When will funds be made available for withdrawal?"
The Fed said that some banks could have arrangements in place to advance funds to depositors prior to the warrants' pay date and that warrants will not likely be subject to the normal federal check-hold limits.
In addition, the Fed warned there could be a potential for customers to incur certain fees.
California "will likely return unpaid any registered warrants that it receives before the payment date," the Fed said. "Depositors of these warrants may be subject to returned-deposit fees if their banks attempt to collect these warrants before they are payable."
The Wall Street Journal reported earlier Thursday that some banks have committed to accepting the IOUS. Most banks also accepted them back in 1992 when Sacramento had to issue them during a budget problem.
Without these IOUs, the state's top accountant has said California would run out of cash by the end of July.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com
-By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com
(Wall Street Journal reporters Stu Woo and Sabrina Shankman contributed to this article.)
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Publié le 03 Juillet 2009 Copyright © 2009 Dowjones