RAMALLAH – Two of Israel’s largest commercial banks are terminating the correspondent-banking relationships that have kept Palestinian cross-border commerce functioning for decades, and Palestinian monetary authorities warn the exits will push the territory’s economy to a breaking point before the end of the year.
Discount Bank has told Palestinian lenders it will terminate correspondent services on September 1. Bank Hapoalim follows on October 1. Together, the withdrawals will sever Palestinian banks from the shekel clearing system and the international wire networks that handle payroll transfers, supplier payments, and import financing across the West Bank.
The Palestine Monetary Authority issued a public alarm describing the situation as “the breaking point: sounding the alarm before collapse,” language unusual for a central-banking institution. The Palestinian Finance Ministry added a harder warning: without formal correspondent channels, financial flows will shift to unregulated cash-based networks, raising money-laundering risks that could expose Palestinian institutions to international sanctions.
For businesses operating in Area C of the West Bank, territory under full Israeli civil and military control, the calendar is unforgiving. Payroll transfers, VAT remittances to Israeli tax authorities, and import financing for goods entering through Israeli ports all depend on the correspondent architecture scheduled to vanish by October. A Palestinian Chamber of Commerce official, speaking on background, said member companies had no viable workaround at current transaction volumes.
Israeli Finance Minister Bezalel Smotrich has been central to the correspondent-banking standoff for more than a year. His ministry controls the regulatory lever that determines whether Israeli banks can maintain Palestinian correspondent relationships under existing indemnity frameworks. Smotrich did extend an indemnity waiver through end of 2026, but used negotiations over that extension to secure approval for 34 new settlement units in the West Bank, a linkage opposition Knesset members have called extortion. His office did not respond to questions.
An alternative institution exists on paper. The Company for Correspondence Services was established in 2019 precisely to provide a state-backed fallback if private Israeli banks exited. Seven years later, it has never been made operational. Palestinian officials say the Israeli regulatory approvals required to activate it have been withheld without explanation or timetable.
The United States has privately warned Israeli officials that a Palestinian Authority financial collapse would threaten the Trump administration’s Gaza stabilization framework. American negotiators have argued internally that a PA unable to pay salaries or process imports cannot function as a governing partner in any credible post-war Gaza arrangement. Those private warnings have not produced any public Israeli policy shift, and no senior American official has addressed the correspondent-banking question in press briefings.
The wider context is the genocide in Gaza, where more than 40,000 Palestinians have been killed in Israeli military operations since October 2023. The financial severance of the West Bank follows a pattern international legal scholars have analyzed as coordinated: where military operations are absent, economic pressure is applied instead. Critics of the Israel-Saudi nuclear normalization track have made parallel arguments, noting that diplomatic overtures and financial strangulation of Palestinians are advancing simultaneously.
Palestinian private-sector representatives have opened emergency consultations with Jordanian, Qatari, and Turkish financial institutions. No agreements have been announced. Bankers familiar with correspondent due-diligence processes say establishing a new relationship typically requires six to twelve months of documentation, compliance review, and regulatory clearance, a timeline the September deadline does not accommodate.
The International Monetary Fund’s most recent West Bank and Gaza assessment found Palestinian banking-sector capitalization had fallen below minimum regulatory thresholds, warning that a disorderly collapse would be difficult to reverse. Discount Bank’s exit is now less than six weeks away.
For Palestinian families relying on remittances from workers in Jordan, the Gulf, and Europe, collapsed formal channels would force transfers into hawala networks. Those systems function, but at higher cost and lower reliability, and cannot substitute for institutional banking flows at a national scale.
The US Congress approved continued military assistance to Israel in this year’s defense authorization bill with limited debate over conditionality provisions. Whether that appropriation creates any leverage applicable to Israeli banking policy toward Palestinians has not been tested in any public forum. Congressional oversight of conditionality has remained minimal.
The Palestinian Authority has appealed to the European Union, the Arab League, and the United Nations for intervention. No mechanism in existing international agreements compels Israeli commercial banks to maintain correspondent services with Palestinian lenders.
What remains unanswered is whether the two banks acted independently on commercial risk grounds, or whether the synchronized exit, different institutions one month apart within the same autumn window, reflects coordinated signaling from the Finance Ministry. Israeli banking regulators have not commented. Discount Bank and Bank Hapoalim did not respond to questions submitted by The Eastern Herald. For Palestinian depositors and businesses, the distinction between a market judgment and a policy instrument may matter less than the calendar.
