Progress made in talks with Israeli banks on reversing decision that could collapse PA economy — sources

Significant progress has been made in talks with a pair of Israeli banks to push off imminent plans to cease providing correspondent banking services to Palestinian counterparts, which could collapse the West Bank economy, two sources familiar with the matter tell The Times of Israel.

Last month, Israeli banks Discount and Hapoalim informed their Palestinian counterparts that they would cease providing the service necessary for West Bank commerce on September 1 and October 1, respectively.

The banks faulted the Israeli government for the decision, explaining that they had been assured roughly a decade ago that a new bank would be set up to replace them in providing correspondent banking services to Palestinian banks. However, successive governments dragged their feet in advancing the issue.

Instead, finance ministers signed indemnity waivers, meant to shield Discount and Hapoalim from legal liability over any potential Palestinian money laundering or terror financing.

But Finance Minister Bezalel Smotrich began toying with that policy as part of a host of steps aimed at weakening the Palestinian Authority. Over the past year, he signed waivers that only lasted for two weeks at a time.

Following pressure from the United States, Smotrich agreed late last month to sign indemnity waivers that extended until the end of 2026 — past the October 27 elections, after which a government slightly more sympathetic to the Palestinians could potentially take charge.

But by then, the Israeli banks had already lost their patience and informed their Palestinian counterparts that they would still cease providing correspondent banking services in the coming weeks.

The notification sparked panic in Ramallah, and officials from the US and European Union intervened on the PA’s behalf, an Israeli official said.

Israeli authorities have subsequently held talks with Discount and Hapoalim to resolve the issue and are nearing a solution that would see the banks put off their plan in exchange for improvements to the indemnity waiver terms, a source familiar with the matter tells The Times of Israel.

A source from each of the two Israeli banks in question confirms the progress in those talks, while clarifying that a final decision to delay their respective deadlines has not yet been reached.