Between Banks and Borders: Israeli Institutions Extend Palestinian Banking Services Through the Quiet Months Ahead

Money often moves quietly, crossing borders without announcing its passage. In the financial system connecting Israel and Palestinian markets, those movements depend on correspondent banking arrangements that allow payments, salaries and commercial transactions to continue. This infrastructure will remain in place through the end of 2026 after two major Israeli banks agreed to extend their services.

Israel Discount Bank and Bank Hapoalim had been preparing to end their correspondent relationships with Palestinian banks. Following discussions with Israel’s Finance Ministry, however, both institutions agreed to postpone that step and continue providing services until the end of the year.

The arrangement is significant because the financial relationship handles a large volume of transactions. According to the Palestinian Monetary Authority, the two banks process around 51 billion shekels, equivalent to roughly $17 billion, in transactions each year for the Palestinian Authority. Around 90% of Palestinian trade also relies on access to Israel’s financial system.

Much of that activity is ordinary economic movement: payments connected with food, fuel, medicine, salaries and services. Behind those transactions are banking channels that need to remain open for funds to move between accounts and institutions.

The current system operates through indemnity waivers that protect the Israeli banks from certain legal risks associated with providing correspondent services. Those arrangements have allowed the banks to continue processing shekel payments while discussions over a longer-term structure remain unresolved.

Bank of Israel Deputy Governor Andrew Abir said a more permanent solution would eventually be needed. One possibility would be for an existing bank to continue acting as the correspondent institution, while another would involve a government-backed company taking over the function.

The question is partly about continuity. Correspondent banking is a specialized part of the financial system, and replacing an established channel can require new procedures, compliance systems and relationships between institutions. The extension through 2026 therefore provides additional time for a longer-term framework to be considered.

The shekel remains central to the relationship. Abir said a shift to another currency would be difficult because the Palestinian economy is closely connected with Israel’s financial system and the shekel remains the obvious currency for many transactions.

For businesses and financial institutions, the continuation means that familiar payment routes remain available for now. The arrangement does not resolve the longer-term question of who should provide correspondent services, but it keeps the existing financial infrastructure functioning while that question remains open.

Through the end of 2026, the banking system will therefore continue along a temporary but important bridge. Its significance lies not in the visibility of the arrangement, but in the everyday transactions that depend on it — payments moving, accounts communicating and commercial activity continuing through established financial channels.

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Sources: Reuters Bank of Israel Palestinian Monetary Authority