Rod Brown, president & CEO of the California Bankers Association, released the following statement today regarding the state of California’s issuance of registered warrants:
“The inability of the state legislature to reach a budget solution has placed a tremendous burden on California’s citizens, communities and banks. Today, the state controller’s office began to issue its first round of registered warrants, or IOUs, and expects to issue as much as $3.36 billion for the month of July.
“California banks highly value the relationship they have with their customers, and the natural inclination for the banking community is to be helpful corporate citizens, however the current budget situation has certainly created a dilemma for California’s banks. Each individual financial institution will independently make the decision of whether or not they will accept these warrants, and CBA expects there will be some banks that will accept warrants, while others will decide not to. There are a number of issues and concerns that banks will have considered when making this decision.
“Since early last winter, CBA and an industry task force have been working with the controller’s office to establish operational policies and procedures for banks regarding the acceptance and processing of registered warrants. CBA only learned last Wednesday of the controller’s plan to issue registered warrants on July 2. We had previously understood that the state would have sufficient cash flow through July 28. Given only eight days notice, many banks have not had adequate time to complete preparations to accept registered warrants.
“Additionally, industry has asked for specific answers to a number of questions pertaining to the validation process, and still unresolved are a number of procedural issues. And only this morning, were we made aware of what the interest rate on these warrants will be.
“There are also unresolved issues relating to the redemption of these warrants and the prospects for timely repayment by the state. While the warrants have a maturity date of October 2, 2009, given the state’s current cash flow outlook, there are no assurances that the state will in fact have the funds to make holders of these warrants whole. We have learned that if sufficient cash is not available by the October 2, 2009 maturity date, registered warrants may be issued to cover those previously issued registered warrants.
“In evaluating potential registered warrant acceptance, banks have been advised by regulatory authorities to consider such issues as credit quality, capital requirements and concentration limits. Given the poor credit rating of California – the worst in the nation – banks may be hesitant to extend credit to the state.
“We encourage any Californian who receives a registered warrant to go in and talk to their bank, even if their bank has made the decision not to accept these warrants. Many banks are prepared to assist their customers in other ways to get through this fiscal crisis.”
About the CBA
Established more than 118 years ago, the California Bankers Association (CBA) is one of the largest state banking trade associations in the country. CBA leads the way in developing relevant educational and legislative solutions to some of California’s more pressing financial and banking issues, including adult financial empowerment, identity theft, financial privacy, and financial elder abuse. CBA’s membership includes more than 200 of California’s commercial, industrial and community banks and savings associations. For more information, visit www.calbankers.com.
