Importance of the Correspondent Banking Agreement Between Palestinian and Israeli Banks
The correspondent banking agreement between Palestinian banks and Israeli banks is crucial for the Palestinian economy, particularly in light of the ongoing conflict and economic challenges. This agreement, which provides legal protection to Israeli banks against lawsuits alleging terrorism financing, is set to expire at the end of October 2024. The delay in renewing this agreement has raised significant concerns among Palestinian banks, especially since the Israeli Ministry of Finance has yet to sign its extension.
Currently, two Israeli banks, Discount and Hapoalim, manage the banking relationships for Palestinian banks, facilitating cash transfers that are essential for trade. The volume of trade between the two sides is substantial, amounting to approximately $800 million monthly, with total transfers exceeding $1 billion. Without the correspondent banking agreement, Palestinian banks would struggle to operate effectively, losing access to the global banking system and jeopardizing the financial stability of the Palestinian Authority.
International Concerns and Potential Economic Collapse
The urgency surrounding the renewal of this agreement has attracted international attention, particularly from the United States and its allies. A recent letter from U.S. Treasury Secretary Janet Yellen and finance ministers from G7 countries warned Israeli Prime Minister Benjamin Netanyahu that failure to extend the banking agreement could lead to the collapse of the Palestinian economy. This situation could have dire consequences, including destabilizing the Palestinian Authority and causing a security crisis in the West Bank.
Israeli Finance Minister Bezalel Smotrich, who has the authority to approve the extension, has expressed concerns over illegal financing related to Palestinian families of prisoners and martyrs. However, the Biden administration has indicated that Palestinian banks have met the necessary conditions for renewal. As the situation develops, the Israeli security cabinet is expected to discuss the implications of this agreement, highlighting its critical role in maintaining economic stability in the region.
