US Encourages Israel to Extend Banking Relations with Palestinian Banks for At Least a Year, Reports Reuters

By Andrea Shalal and Kanishka Singh

WASHINGTON – U.S. Deputy Treasury Secretary Wally Adeyemo has urged Israel to maintain its banking relationships with Palestinian banks for at least one year to prevent an economic crisis in the West Bank, emphasizing that Israel’s own security interests are involved.

Adeyemo conveyed this message during a meeting with Bank of Israel Governor Amir Yaron in New York on Monday, coinciding with the United Nations General Assembly, and later met separately with Jordan’s King Abdullah.

The Treasury Department reported that Adeyemo expressed concern over threats from some members of the Israeli government to sever correspondent banking ties between Israeli and Palestinian banks, advocating for their extension for a minimum of one year.

Israel’s mission to the U.N. did not provide any comments on the matter.

For several months, U.S. officials have warned that statements from Israeli Finance Minister Bezalel Smotrich and other officials regarding the potential cut-off of Palestinian banks from Israeli counterparts could endanger the stability of the Palestinian Authority, subsequently jeopardizing Israel’s own security.

The authorization for banking correspondence is set to expire on October 31, which could disrupt nearly $10 billion worth of export and import transactions, according to Treasury officials.

Adeyemo also informed King Abdullah that any Israeli decision to disengage from Palestinian banks could escalate regional instability and drive more financial transactions into unregulated areas, adversely impacting both Israeli and regional security, as noted by a source familiar with the discussions.

Similar warnings were raised by Treasury Secretary Janet Yellen prior to a Group of Seven meeting in May, with the issue referenced in two joint communiques from the G7.

The stability of the Palestinian Authority is deemed crucial for maintaining order in the West Bank, which in turn is vital for Israel’s national security, as highlighted by an anonymous U.S. official.

On Monday, the World Bank reported that the Palestinian territories are approaching an economic crisis, citing a staggering 86% decline in Gaza’s gross domestic product in the first quarter of 2024 compared to the previous year. The Palestinian Authority is also facing a $1.86 billion financing gap for 2024 and an increased risk of systemic collapse.

In June, Smotrich extended a waiver allowing cooperation between Israel’s banking system and Palestinian banks in the West Bank, but this extension was only for four months, a shorter duration than previous approvals.

The waiver permits Israeli banks to process payments related to services and salaries connected to the Palestinian Authority without the threat of being implicated in money laundering or funding terrorism. Without this waiver, Palestinian banks risk being excluded from the Israeli financial system.

U.S. officials have remained tight-lipped regarding potential consequences should Israel choose not to extend the waiver, including whether sanctions similar to those imposed on Israeli settlers for violence against Palestinians might be applied.