Correspondent Banking Relationships in Palestine: Strengthening Financial Stability and Mitigating Disruption Risks
Correspondent banking relationships (CBRs) are a fundamental pillar of the Palestinian economy, enabling banks operating in Palestine to process international payments, settle cross-border transactions, finance trade, and manage financial transfers. The significance of CBRs is particularly pronounced in the Palestinian context, given the absence of a national currency and the economy’s heavy reliance on the Israeli shekel, in addition to the close dependence on foreign trade, financial transfers, and clearance revenues with Israel.
Since late 2023 in particular, CBRs have faced increasing risks amid repeated threats to halt or restrict banking relations between Israeli banks and banks operating in Palestine, raising genuine concerns over the continuity of payments, foreign trade, and financial stability. Although international and Palestinian efforts have succeeded in renewing the temporary legal guarantees that have allowed these relationships to continue, the situation remains marked by a high degree of uncertainty.
The fragility of the Palestinian context stems from three main factors: the extensive reliance on the Israeli shekel; the concentration of settlement and clearing arrangements among a limited number of Israeli banks; and the heavy dependence of trade and financial transfers on existing banking channels.