DayofPal– Israeli Finance Minister Bezalel Smotrich has ordered the termination of legal immunity granted to Israeli banks that conduct transactions with Palestinian banks.
The move is leading to the collapse of the Palestinian banking system, according to experts.
According to a statement from Smotrich’s office, the finance minister directed Accountant General Yali Rothenberg to revoke the government guarantees provided to Israeli correspondent banks operating with banks under the Palestinian Authority (PA).
These guarantees had protected Israeli financial institutions from legal liability when handling transactions with their Palestinian counterparts.
The statement framed the decision as a response to what Smotrich described as the Palestinian Authority’s “delegitimization campaign” against Israel on the international stage.
Israeli Channel 12 reported that this decision “could mean the economic collapse of the Palestinian banking system.”
Smotrich’s move marks an escalation of his previously stated threats. In recent months, he warned of actions to “bring down the Palestinian economy” if the UK or other countries imposed sanctions on Israeli officials, particularly in response to violence by Israeli settlers in the occupied West Bank.
Last November, Israel’s Security Cabinet had extended the immunity arrangement for a further year, until November 2025. That protection allowed two major Israeli banks, Bank Hapoalim and Bank Discount, to continue processing financial transactions between Palestinian and Israeli institutions, as well as with international banks.
These banks are critical for currency exchanges, tax transfers, and broader international financial access for Palestinians.
Without this legal shield, Israeli banks are unlikely to continue their dealings with Palestinian institutions, effectively cutting off the financial lifeline between the Palestinian territories and the global banking system.
This move adds to a growing list of economic pressures Israel has placed on the Palestinian Authority. Among them is the continued withholding of maqasa (clearance) funds, taxes and customs duties collected by Israel on behalf of the PA for goods entering Palestinian territories.
These funds constitute a significant portion of the PA’s operating budget and are essential for paying public sector salaries and basic services.
Analysts say that ending the banking protections could paralyze financial operations in the West Bank and Gaza, further destabilizing a Palestinian economy already reeling under Israeli occupation, war, and blockade.
Smotrich’s latest move comes as he and National Security Minister Itamar Ben Gvir face growing international condemnation.
On Tuesday, the foreign ministers of the United Kingdom, Canada, Australia, New Zealand, and Norway announced coordinated sanctions against the two far-right Israeli ministers, citing their incitement of settler violence against Palestinians in the occupied West Bank.
According to The Times (UK), the sanctions include travel bans, asset freezes, and prohibitions on financial dealings with the ministers. The joint statement from the five countries expressed alarm at rising violence in the West Bank and condemned inflammatory rhetoric from Israeli officials.
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