Middle east

Israel’s threat to isolate Palestinian banks raises US concern

US Treasury Secretary Janet Yellen expressed concern today, Thursday, over Israel's threat to sever ties between Palestinian banks and Israeli correspondent banks, a move that could shut down a vital lifeline to the Palestinian economy

Yellen added during a press conference before a meeting of finance ministers from the Group of Seven major industrialized nations in Italy today, Thursday, that the United States and its partners “need to do everything they can to increase humanitarian aid to Palestinians in Gaza, contain violence in the West Bank, and work to stabilize the economy of the West Bank.”

She said she would raise the issue at a meeting of G7 countries in Stresa, northern Italy, adding, “I expect other countries to express their concern during the meeting about the impact of this decision on the West Bank economy. I believe this will also have a very negative impact on Israel.”

Israeli Finance Minister Avigdor Smotrich hinted at the possibility of not renewing an exemption expiring on July 1, allowing Israeli banks to handle shekel payments for services and salaries related to the Palestinian Authority.

Smotrich said in a post on the social media platform “X” in response to Yellen’s comments that he could not sign the exemption because Palestinians continue to fund “terrorism” and that Israeli banks could be sued for violating terrorism financing rules.

He added that “the financial system of the Palestinian Authority is corrupt to the core,” with Smotrich being a member of an Israeli coalition party affiliated with the far right and supporting settlement expansion in the West Bank. Critics of the policy are labeled “hypocrites.”

Yellen emphasized the importance of maintaining correspondent relationships between Israeli and Palestinian banks to allow the struggling economies of the West Bank and Gaza to function and contribute to ensuring security.

She added, “These banking channels are critical for processing transfers that facilitate imports worth around eight billion dollars annually from Israel, including electricity, water, fuel, and food, as well as for facilitating exports worth around two billion dollars annually that are essential to the livelihoods of Palestinians.”

She added that “Israel’s withholding of revenues collected on behalf of the Palestinian Authority also threatens the stability of the economy in the West Bank.”

She said, “My team and I have been in direct contact with the Israeli government to encourage measures that will strengthen the Palestinian economy, and I believe this will also contribute to Israel’s own security.”

Financial tensions between Israel and the United States have escalated due to sanctions imposed by Washington on settlers in the West Bank.

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