Palestinian banking crisis averted for now, as Israeli bank defers plan to halt services

A Palestinian banking crisis has been averted for the time being, after Israel’s Discount Bank agreed to postpone its plan to cease providing correspondent banking services to Palestinian financial institutions amid international pressure, an Israeli and a Palestinian official tell The Times of Israel.

Discount had informed Palestinian banks earlier this summer that it would cease providing the service on September 1, which is essential to the import and export of goods to and from the West Bank.

Following intensive negotiations with the Bank of Israel — and amid significant pressure from the US and the European Union — Discount has agreed to put off that decision until December 31.

Discount and Hapoalim are the only Israeli banks that provide correspondent banking services, which tether the West Bank to the global economy.

Hapoalim also informed Palestinian banks of a decision to cease providing the service as of October 1.

A source at one of the banks said Hapoalim was also expected to postpone its move until the end of 2026, but that a decision has not yet been made.

The banks had blamed the Israeli government for their decisions to cease providing correspondent banking services, explaining that they had been assured roughly a decade ago that a new financial entity would be established to assume the task of providing correspondent banking services to Palestinian banks.

The service has allowed Palestinian banks to process cross-border payments for commercial activity, though the two Israeli banks have long expressed concern they could be exposed to lawsuits for alleged Palestinian money laundering and terror financing.

Successive governments, however, have dragged their feet on establishing the new entity, with finance ministers instead signing indemnity waivers meant to shield Discount and Hapoalim from possible legal liability.

Finance Minister Bezalel Smotrich began reassessing that policy as part of a host of steps aimed at weakening the Palestinian Authority, which he has called to abolish. Over the past year, he signed waivers that only lasted for two weeks at a time.

Following pressure from the Trump administration, Smotrich agreed late last month to sign indemnity waivers for Discount and Hapoalim that are in effect until the end of the year, when a government less hostile to the PA could take charge, depending on the outcome of the October 27 Knesset elections.

But by time Smotrich signed those waivers, the Israeli banks had already lost patience and informed their Palestinian counterparts that they would nevertheless stop providing correspondent banking services in the coming weeks. That decision, however, has now been pushed off for a few months.