Governor Arnold Schwarzenegger and state legislators are slugging it out over how to fix California’s $26.3 billion budget gap. Now, some of the nation’s biggest banks are sending them a message: You’re on your own.

Many of the state’s banks and credit unions have been cashing the state’s IOUs like checks. They have some incentive to do so, as the IOUs carry a 3.75% annual interest rate. But the interest and principal amounts aren’t due to be paid until Oct. 2,and that’s only if the cash-strapped state has the money.

So after initially agreeing to cash the IOUs, some of the state’s biggest banks are now saying no more. Bank of America, JPMorgan Chase, and Wells Fargo all say they won’t accept the IOUs after July 10. Banks have balance-sheet issues of their own these days. And the big lenders do not want to be perceived as an enabler of the Golden State’s dysfunctional government.

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