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 counterparts for cross-border transactions, currency clearing, and trade settlement. In 2025, Israeli banks processed 51 billion shekels for the Palestinian sector. The crisis stems from a mix of anti-money laundering compliance, private sector risk aversion, and political maneuvering. Consequences include a freeze on essential imports (fuel, medical supplies), inability to pay public sector salaries, and a liquidity crisis with 18 billion shekels (nearly $6 billion) sitting idle in vaults. The Palestinian Monetary Authority and international institutions have raised alarms.
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