When Banking Becomes Geopolitics: The Correspondent Banking Crisis Threatening the Palestinian Economy
The Palestinian economy faces a systemic shock as major Israeli banks, Bank Hapoalim and Bank Discount, plan to sever correspondent banking relationships with Palestinian banks by August and September 2026. This move threatens to paralyze the West Bank's financial system, as Palestinian banks rely entirely on Israeli correspondents to process cross-border transactions, settle trade, and manage currency liquidity. In 2025, Israeli banks processed approximately 51 billion shekels for the Palestinian sector. The crisis stems from a collision of anti-money laundering compliance, private sector risk aversion, and political maneuvering. Without these links, imports of fuel and medical supplies could freeze, public salary disbursements would be compromised, and an estimated 18 billion shekels in idle cash would exacerbate a liquidity crisis. The Palestinian Monetary Authority and international institutions have raised alarms over the impending disruption.
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