Two Israeli Banks Intend to Halt Correspondent Services with Palestinian Banks Within Months... The Decision Rests with Netanyahu

SadaNews Translation: The Israeli newspaper Globes revealed that Discount Bank and Bank HaPoalim intend to halt correspondent and banking transfer services with Palestinian banks within a period ranging from two to three months, a move attributed by Israeli banks to the increasing legal risks associated with anti-terrorism financing and money laundering laws.

According to the newspaper, Discount Bank set September as the initial date to end the relationship, while Israeli banks are demanding the government take full responsibility for the legal risks by establishing a government correspondent bank, a project the government had committed to implement several years ago but has yet to materialize.

The newspaper indicated that the volume of trade between Israel and the Palestinian Authority exceeded 21 billion shekels during the year 2025, which fundamentally depends on the continued operation of clearing channels and financial transfers provided by Israeli banks to Palestinian banks.

It added that Israeli banks have begun to view that the compensation letters issued by the Israeli government to provide legal protection are no longer sufficient, amidst growing fears of being subjected to lawsuits or penalties from international financial institutions that provide correspondent services in euros and dollars.

The newspaper reported that banking sources, as translated by SadaNews, indicated that recent assessments of compliance and anti-terrorism financing risks have led bank managements to reconsider the continuation of these services, considering that the volume of legal risks no longer justifies continuing to provide them without the state assuming direct responsibility.

In this context, the newspaper clarified that the Israeli government had approved in 2022 the establishment of a specialized government company to take over correspondent banking services with Palestinian banks, aiming to exempt commercial banks from legal responsibility, but the project has stalled and not yet come into effect.

Globes quoted Israeli Finance Minister Bezalel Smotrich affirming his opposition to the state assuming this responsibility, considering that the project has failed to launch due to the lack of entities willing to manage it, while the Bank of Israel expressed reservations about halting correspondent services, warning of widespread economic repercussions on both the Palestinian and Israeli economies.

The newspaper added that the Israeli Ministry of Finance also expressed concern about the step, while banks are pressuring the government to expedite finding a permanent solution by transferring the responsibility to a governmental entity, instead of continuing to bear the legal risks.

Globes speculated that the issue might escalate to Israeli Prime Minister Benjamin Netanyahu's office, as it exceeds the authorities of the Ministry of Finance and requires a government decision regarding the future of banking relations with Palestinian banks and the potential economic and political repercussions of that.

It also reported experts in anti-terrorism financing predicting that stopping correspondent services could lead to increased reliance on cash and foreign currencies or alternative transfer methods, which might limit the ability to track financial transactions. Meanwhile, Israeli economists see that economic activity will find alternative channels to continue, albeit with increased costs and decreased Israeli economic influence.

In its response, Discount Bank confirmed that it has continued to provide correspondent services over the past years in response to requests from the Israeli government on a temporary basis, until a permanent solution is found, indicating that the continued provision of these services amid increasing legal risks is no longer feasible unless the state assumes full responsibility, expressing its readiness to provide operational support during any transitional phase that may be agreed upon.