3 Banks Set Deadline on State IOUs : Spending: Bank of America, Wells Fargo and Union soon will stop accepting them. Move adds pressure to budget talks.

Three of California’s largest banks announced Thursday that they soon will stop accepting the IOUs that are being used to pay state government workers and suppliers.

Bank of America, the state’s largest financial institution, announced that beginning Aug. 5 it will stop honoring the IOUs. Wells Fargo Bank and Union Bank also warned that they will not accept registered warrants dated after July 31.

The announcements added a new urgency to budget negotiations between Gov. Pete Wilson and legislative leaders, who have been at an impasse since the state entered a new fiscal year July 1 without an approved budget.

Bank of America’s chairman and chief executive officer, Richard M. Rosenberg, issued a statement regretting the action but saying that the bank had “no satisfactory alternative.”

“In essence, the banks are funding the crisis--serving as a shock absorber for the budget process,” Rosenberg said. “In attempting to help ease the hardships their customers must deal with in this circumstance, the banks are inadvertently making it easier for the emergency to drag on.”

Wilson and other state officials predicted that other financial institutions would follow the example of Bank of America, which is expected to cash a third of the $1.9 billion in registered warrants that the state will issue by the end of the month.

Senate President Pro Tem David A. Roberti (D-Van Nuys) said, “This may be what’s necessary, unfortunately, to get things moving.”

However, Assembly Speaker Willie Brown (D-San Francisco) noted that the state is planning to redeem $922 million of the IOUs beginning Aug. 3. The bank’s move “absolutely makes no sense whatsoever,” said Brown, who added that he would try to persuade the bank to reverse its decision.

But the state will begin issuing new IOUs even as it is retiring old ones and the amount outstanding will quickly rise.

Bank of America officials said they tailored the Aug. 5 deadline to assure that state employees, most of whom are paid at the end of the month, will be able to cash the IOUs they receive in place of their July paychecks. About 86,000 employees will be receiving IOUs on July 31, according to the controller’s office.

Wells Fargo, the state’s second-largest bank, said that customers will be able to deposit or cash warrants until Aug. 7, if they are dated July 31 or earlier. Union Bank, the fourth-largest in the state, said that its customers will have until Aug. 10 to present IOUs issued in July.