Left with dollars and crypto: 9 banks to be cut off from shekel trading with the PA
After Discount and Hapoalim banks announced they would stop money transfers to Palestinian banks due to fears of links to terrorism, the move is expanding to banks in neighboring countries. Foreign currency trading will continue, which may hinder oversight.
Nine banks will be cut off from the Israeli banking system regarding transactions in shekels with Palestinian entities, according to information obtained by Globes. Only four of them are Palestinian, four others are Jordanian, and one is Egyptian. These banks are used to provide bank guarantees for large Palestinian transactions, including all shekel transactions with businesses in Israel. Transactions in foreign currency, however, will continue, which will weaken Israel's ability to monitor what is happening in the PA. This disconnection will take place gradually in the months of September and October, and it is expected to dramatically destabilize the financial system in the Palestinian Authority. The Ministry of Finance is trying to reach a compromise with the Israeli banks, but so far, to no avail.
Trade with the PA stood at more than 21 billion shekels in 2025, but its existence requires an infrastructure of money transfers between Israel and the PA. This is conducted through two correspondent banks that provide clearing and money transfer services for banks in the Palestinian Authority: Hapoalim and Discount. Laws against terror financing put the banks at risk. Hapoalim and Discount will cease their operations in the months of September-October. This is, according to estimates, due to intelligence reports that revealed the involvement of Palestinian banks in money laundering and terror financing. Among other things, the Bank of Palestine, the largest bank in the PA, serves as a conduit for transferring funds to the families of terrorists as part of the PA's policy of supporting those who have carried out terror attacks in Israel.
The banks in Jordan and Egypt with which Discount and Hapoalim will stop their engagement in transactions with the PA: Arab Bank (Jordan), Amman-Cairo Bank (Jordan), Bank of Jordan (Jordan), Ahli Bank (Jordan), Arab Land Bank (Egypt).
Will they switch to foreign currency?
According to information that reached Globes, Discount will cut its ties with five banks: Amman-Cairo Bank, Arab Bank, Al-Quds Bank, Bank of Jordan, and the Jordanian Ahli Bank. Bank Hapoalim will cut its ties with five banks: Bank of Jordan, Bank of Palestine, Palestine Investment Bank, Arab Islamic Bank, and the Arab Land Bank. Of all the banks, four are local Palestinian, one is Egyptian, and the rest are Jordanian. Beyond the fact that the list mostly includes foreign banks, this also testifies to the extent of the Palestinian Authority's banking system's reliance on foreign-owned banks, especially Jordanian ones — a remnant of the period between 1949 and 1967.
As mentioned, these banks are used for bank transfers between Israel and the Palestinian Authority and are responsible for all shekel transactions. However, transactions in foreign currency (dollars, for example) will still be possible through foreign correspondent banks operating in dollars. So, in fact, the Palestinian Authority's trade is expected to switch to dollars, euros, crypto, and also cash. Such a transition, they fear in Israel, will significantly damage the ability to track and monitor the transfers. An economist at one of the Israeli banks described it this way:
"The economy always finds a way. So instead of trading in shekels, they will trade in dollars. Monetary history shows us that companies do not freeze in such cases, there are always substitutes. This will not bring the effect that Bezalel Smotrich hopes for, and Israel will lose power and influence."
Indemnity letter from the government
Since 2018, the government has been promising to find a solution to the banks' concerns due to their exposure to money laundering and terror financing risks. To compensate them, the government issues an indemnity letter promising to cover losses from such lawsuits, and the government's legal counsel protects them from criminal consequences. The indemnity letter is provided temporarily and is extended from time to time, but the banks do not currently believe that this is enough to protect them. Originally, Israel planned to establish a government bank for correspondence that would take responsibility upon itself, but delays by Finance Minister Bezalel Smotrich led Discount to take an independent step and initiate the cutting of these ties itself. Banks in Israel fear serious consequences, including lawsuits from entities like Deutsche Bank and Citibank that provide them with correspondent services abroad.
