Israel acts to ease Palestinian banking crisis it helped create, but is it moving too late?

The Palestine Monetary Authority (PMA) will hold a press conference in Ramallah to warn about the potential collapse of the Palestinian economy. This follows decisions by Israeli banks Discount and Hapoalim to cease correspondent banking services to Palestinian banks later this year. These services are crucial for processing cross-border payments and connecting the West Bank to the global economy, as Palestinian banks cannot clear transactions in shekels directly.

Discount Bank stated it has “complied for years with the requests of the Israeli authorities to continue providing these services on a temporary basis, pending the implementation of a permanent solution by the state, which has not been provided to date.”

The Israeli banks, which have long expressed concerns about exposure to lawsuits over alleged money laundering and terror finance, have been caught in the middle of Finance Minister Bezalel Smotrich’s efforts to weaken the Palestinian Authority. Smotrich has withheld signing indemnity waivers, which protect the banks, and has tied recent waivers to settlement expansion. While Smotrich recently agreed to sign a waiver until the end of 2026, the banks had already notified their Palestinian counterparts of their intent to stop services on September 1 and October 1, respectively. The Israeli Finance Ministry is now in discussions with the banks to find a solution, acknowledging that discontinuing these services could have negative implications for regional economic stability and increase risks of unregulated financial channels.