UPDATE 1-BofA, Wells Fargo will take California's IOUs

SAN FRANCISCO, Sept 2 (Reuters) - Bank of America Corp (BAC.N) and Wells Fargo & Co (WFC.N) said on Wednesday they will accept IOUs issued by California's state government to preserve its dwindling cash during its budget crisis.

Bank of America will accept the IOUs, technically registered warrants, beginning Sept. 9, honoring the principal instantly. Interest on the IOUs will be paid up to 30 days later. The window closes on Oct. 9.

As many of 100,000 warrants are outstanding with Bank of America customers alone, a company spokeswoman said.

The bank has been working with California State Treasurer Bill Lockyer's office and State Controller John Chiang's office to finalize the process for accepting remaining warrants.

"It's a significant operational undertaking for the bank," said Colleen Haggerty, a Bank of America spokeswoman.

Wells Fargo will accept IOUs for redemption from Friday, Sept. 4, through Sept. 30. The bank will only repay accrued interest of more than $5. After Sept. 30, IOUs will be accepted, but interest will not be paid.

A Wells Fargo spokeswoman did not immediately respond to requests for comment.

The two banks are the largest in California, ranked by deposit market share. Bank of America is first, with $163 billion in 1,004 offices, while Wells Fargo is second, with $112 billion in 1,005 offices, according to Federal Deposit Insurance Corp. data.

Lockyer's office will begin redeeming IOUs on Friday, Sept. 4. Last week, the office reached a deal with JPMorgan Chase & Co (JPM.N) for a $1.5 billion loan with no fees and a 3.0 percent interest rate to help pay off the IOUs ahead of schedule.

The IOUs, which carry a 3.75 percent annualized interest rate, were originally scheduled to start being redeemed on Oct. 2 by Lockyer's office.

"The treasurer considers the actions by Bank of America and Wells a positive development for their customers and hopefully, it will make our job of redeeming IOUs easier," Lockyer spokesman Tom Dresslar said. (Additional reporting by Joe Rauch; Editing by Jan Paschal)