Palestine's Economy on the Brink as Banking Lifeline Is Severed

RAMALLAH, Palestine – July 24, 2026 – In a high-stakes meeting titled “The Breaking Point: Sounding the Alarm Before the Collapse,” the Palestinian Monetary Authority (PMA) has issued its most urgent warning yet, declaring that the Palestinian economy is being driven toward total collapse. The immediate cause is the impending severance of correspondent banking relationships (CBRs) by major Israeli financial institutions, a move that threatens to cut off Palestine’s primary gateway to global trade and trigger a severe humanitarian crisis.

Speaking to an assembly of ambassadors and international financial leaders, PMA Governor Yahya Shunnar painted a grim picture. “The continuation of the Israeli measures is driving the Palestinian economy toward collapse, threatening food security and the provision of essential services,” he stated, urging the international community to act before the financial system reaches a point of no return.

A Severed Artery: The Correspondent Banking Crisis

At the heart of the crisis is the decision by two of Israel’s largest banks, Discount Bank and Bank Hapoalim, to terminate their correspondent services for Palestinian banks. The deadlines are perilously close: September 1 for Discount Bank and October 1 for Bank Hapoalim. These relationships are not a matter of convenience; they are the essential arteries of the Palestinian economy.

Under the 1994 Paris Economic Protocol, the agreement governing economic ties between Israel and the Palestinian Authority, Palestinian banks lack direct access to Israel's central payment systems. Consequently, they rely entirely on Israeli correspondent banks to process transactions in Israeli Shekels (ILS)—the dominant currency in the West Bank—and to connect to the global financial system. This includes settling payments for nearly all imports, which originate from or pass through Israel, facilitating wage transfers for over 100,000 Palestinians who once worked in Israel, and repatriating surplus physical currency.

The scale of this dependency is staggering. In 2025 alone, these Israeli correspondent banks processed approximately NIS 51 billion (around $16.5 billion) in transactions. The termination of these services would effectively halt the automated clearing of wire transfers, paralyzing trade and daily economic life.

The Politics of Financial Control

The decision by the private Israeli banks is a direct response to what they perceive as mounting legal and financial risks, including potential lawsuits related to terror financing. Historically, the Israeli government has mitigated these risks by providing indemnity waivers. However, this financial mechanism has become a tool of political leverage.

Israeli Finance Minister Bezalel Smotrich has been a central figure in the escalating crisis, conditioning the renewal of these crucial waivers on political concessions. Recently, he agreed to extend protection until the end of 2026, but this was reportedly in exchange for approval of new settlement units in the West Bank. Furthermore, Smotrich has continued to withhold a significant portion of the clearance revenues—taxes Israel collects on behalf of the Palestinian Authority—severely constraining the PA’s ability to fund public services and pay salaries.

These actions are seen by many observers as the weaponization of finance. While the Israeli finance ministry cites risks of money laundering, Governor Shunnar counters that Palestine’s anti-money laundering framework has been developed to meet or exceed international standards, a position supported by assessments from the US and UK. Driving transactions into an unregulated, cash-based shadow economy, as the PMA and even the US State Department warn will happen, is the “antithesis of anti-money laundering best practices.”

From Bank Ledgers to Empty Shelves: The Human Cost

Should this financial lifeline be cut, the consequences will ripple far beyond bank ledgers, directly impacting the lives of millions. “Any disruption or termination of these relationships,” Governor Shunnar warned, “could rapidly escalate into an economic and humanitarian crisis.”

Broken supply chains could trigger immediate shortages of fuel, energy, medicine, and essential food commodities. This would inevitably lead to soaring prices, exacerbating poverty and unemployment, which has already spiked to 35% in the West Bank after Israel revoked thousands of work permits. The crisis would cripple the Palestinian Authority’s ability to function, leading to a potential collapse of public services.

Compounding the issue is a physical cash problem. Nearly NIS 18 billion (about $6 billion) in shekels currently sits idle in Palestinian bank vaults. Without a functioning correspondent banking relationship, there is no electronic mechanism to repatriate this surplus cash to the Israeli banking system. This forces Palestinian banks to operate in an inefficient, costly, and high-risk cash-heavy environment, limiting their ability to extend credit to the private sector and further strangling economic growth.

An Urgent International Appeal

The Ramallah meeting was a desperate plea for intervention. Attended by representatives from the IMF, the UN, the Central Bank of Jordan, and the Arab Monetary Fund, the session underscored the shared recognition that the window for effective action is closing. Participants acknowledged that averting disaster requires “urgent, coordinated intervention to secure stable, sustainable arrangements.”

The United States has voiced its concern, with the Treasury and State Department both urging Israel to maintain banking ties to prevent a crisis that would destabilize the region. American diplomats have reportedly engaged in intense negotiations, emphasizing the importance of stable correspondent banking for regional security. Jordan, whose own banks have significant exposure in the Palestinian territories, faces the prospect of holding large, untransferable shekel balances if the ties are severed.

Yet, with the deadlines set by Discount Bank and Bank Hapoalim looming, the international community is in a race against time to translate concerns into concrete action and prevent the Palestinian economy from being pushed over the edge.