Jul. 8--Local banks are redeeming IOUs from cash-strapped California, which hasn't been able to shore up a $24 billion deficit. But they are grinning and bearing it in hopes that legislators will soon get their act together -- really soon.

East West Bancorp and California General Bank in Pasadena, Chase, Friendly Hills Bank in Whittier, Wells Fargo & Co., Union Bank and Bank of America are all redeeming state IOUs -- but only for so long.

Several have set deadlines of Friday. Some have not set dates. But they are all wary of risk, especially as news came Monday that a major credit-rating agency downgraded California's debt from A- to BBB. That's reportedly the lowest bond rating of any state.

"We'd prefer not to do it," said Bill Hawkins, president of California General Bank in Pasadena, which has set a July 15 deadline to redeem IOUs for customers who had an account there before July 2. "But we have an obligation to provide assistance to our customers who are business people in the community."

East West has set a Friday deadline. And the large banks -- such as Bank of America, Chase and Wells Fargo -- have said they too are standing firm on a Friday deadline.

Critics have argued that the deadlines will only hurt people who rely on a range of state funding, from tax refunds to some social services.

State officials urged banks to accept the IOUs.

"We're hoping that nobody in California who received an IOU is in harm's way

and that financial institutions find a way to help out their customers in this time," said Garin Casaleggio, a spokesman for State Controller John Chiang, whose office is issuing the warrants.

Chiang's office is not issuing IOUs for unemployment, disability insurance and retirement benefits. But it is issuing them from for up to $3.4 billion in IOUs that come out of the state's general fund for such needs as payments to businesses that have contracts with the state, tax refunds and Cal Grants.

If banks don't accept the IOUs, state officials said IOU holders should consider opening an account at another bank, or hold off until October, when they could be cashed out at a 3.75 percent annual interest rate.

But opening an account at another bank, even if it accepts IOUs, could be tough. Banks are limiting who they will take IOUs from and for how long. In most cases, they are only for existing customers in good standing.

The last time banks accepted IOUs was in 1992. Officials have reportedly said that experience only prolonged the time it took for legislators to resolve the budget mess.

"We don't like the idea of financing the state," Hawkins said. "It frankly slows down the process of getting a budget resolution."

That's something Friendly Hills Bank CEO Jeff Ball wants to get to soon.

His bank has not set a deadline, citing the need for local nonprofits to be able to continue operating. But providing cash until October, when the state says it will pay on the IOUs, is a concern, he said.

"The fact that the state is not going to pay you until October is a real issue," Ball said.

ryan.carter@sgvn.com

(626) 962-8811, ext. 2720

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