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By Jim Christie

SAN FRANCISCO, July 10 (Reuters) - California has enough cash to pay its top bills, including payments to bondholders, through September thanks to IOUs it has been issuing, but it may not be able to make payments in October due to the state's budget crisis, the state controller's office said on Friday.

And as the state struggles with its finances, holders of the IOUs face their own potential problems as three of the biggest banks in California remained on track to stop accepting the notes promising payment later on Friday.

The move by the three banks could open the door to trade the notes in a secondary market to emerge as early as Monday, spurred by any IOU holders in need of immediate cash and indications that there is a ready pool of buyers.

California last week began issuing IOUs in lieu of payments to taxpayers owed refunds and to vendors to manage its cash amid declining revenues and the impasse between Governor Arnold Schwarzenegger and lawmakers over balancing the state's books, which requires closing a $26.3 billion deficit.

The IOUs are intended to free the state's cash, sharply reduced by the recession, for priority payments. General obligation debt payments are constitutionally protected and are California's second highest priority payment behind education.

State Controller John Chiang plans to issue more than $3 billion of the IOUs this month, which will bolster the state's cash account next month. But Chiang's office said California faces a cash in October unless its budget is balanced, and that threatens it ability make its priority payments.

"Without IOUs, the state would have run out of cash and begun missing those protected payments at the end of July," the controller's statement said.