Bank Hapoalim and Discount Delay Ending Palestinian Authority Banking Ties at Bank of Israel’s Request
Bank Hapoalim and Discount Bank, the two Israeli banks serving as correspondent banks for the Palestinian Authority’s financial system, are expected to postpone severing their banking ties until the end of the year. This decision follows a direct request from the Bank of Israel aimed at preventing economic disruption in the Palestinian territories. While no final decision has been made, discussions are ongoing to maintain these financial services temporarily.
These banks have operated as vital conduits for Palestinian-Israeli trade for decades, facilitating transactions worth over 20 billion shekels annually. A complete disconnection could halt commerce, trigger monetary collapse in the West Bank, and harm many Israeli companies. In recent years, the banks have faced increasing pressure to end their involvement due to significant legal and international risks related to anti-money laundering and counter-terrorism financing laws. Their continued operation has depended on indemnity agreements and legal protections from the Israeli government.
However, these indemnity arrangements have become more frequent and short-term, creating ongoing uncertainty. The Israeli government previously approved establishing a dedicated state-owned company to manage these banking activities and relieve commercial banks of liability, but bureaucratic delays have stalled its launch. The current extension granted at the Bank of Israel’s request is intended to buy time to develop a long-term solution amid intense international pressure, particularly from the U.S. administration, to prevent the Palestinian Authority’s financial collapse.
The New York Times recently reported that Palestinian Monetary Authority Governor Yousef Shunnar warned of the severe consequences if the banks cut ties and indicated he received a message from the Bank of Israel to prepare an alternative to the shekel. This complex process is expected to have significant repercussions for trade relations between Israel and the Palestinian territories.
