VZCZCXRO0301
OO RUEHROV
DE RUEHJM #2210 2991222
ZNY CCCCC ZZH
O 261222Z OCT 07
FM AMCONSUL JERUSALEM
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9400
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY

C O N F I D E N T I A L JERUSALEM 002210 
 
SIPDIS 
 
SIPDIS 
 
NEA FOR FRONT OFFICE; NEA/IPA FOR 
GOLDBERGER/SHAMPAINE/BELGRADE; NSC FOR ABRAMS/WATERS; 
TREASURY FOR SZUBIN/GRANT/HARRIS/NUGENT/HIRSON 
 
E.O. 12958: DECL: 10/25/17 
TAGS: ECON EFIN KFTN KWBG IS
SUBJECT: BANKS AWAIT NOVEMBER 30 CUTOFF OF ISRAELI 
CORRESPONDENT BANK SERVICES 
 
REF: A. JERUSALEM 2200 
     ¶B. TEL AVIV 2984 
 
Classified By: Consul General Jake Walles, Reasons 1.4 (b) and (d). 
 
¶1. (SBU) Summary:  The Bank of Palestine (BoP) and Arab Bank 
have been told by their Israeli correspondent banks that they 
will terminate all correspondent banking services effective 
November 30.  BoP and Arab Bank have no clear indication if 
the Israeli state-owned Postal Bank is willing to provide 
correspondent banking services after that.  Senior officials 
from BoP and Arab Bank believe that termination of 
correspondent services will significantly disrupt their 
operations and could force their banks to consider 
transitioning to another currency.  End summary. 
 
--------------------------------------------- --- 
Bank Hapoalim and IDB to Cut Ties by November 30 
--------------------------------------------- --- 
 
¶2.  (C) Bank of Palestine (BoP) General Manager Hashim Shawa 
told Econoff that Bank Hapoalim's board of directors has 
decided to terminate all banking services to BoP effective 
November 30.  Bank Hapoalim threatened to sever ties with BoP 
on October 23, but a personal appeal by Shawa resulted in an 
extension of the termination deadline.  In the interim, Bank 
Hapoalim continues to provide BoP normal correspondent bank 
services, even facilitating a recent BoP cash shipment into 
Gaza (reftel), according to Shawa. 
 
¶3.  (C) In an October 15 letter to BoP and Arab Bank, Israel 
Discount Bank (IDB) described a 45-day plan to terminate 
services to both banks, starting with an immediate halt of 
cash services to Gaza branches.  Shawa and Arab Bank Regional 
Manager Mazen Abu Hamdan told Econoff separately that IDB 
planned to cutoff cash services to their West Bank branches 
by November 15, followed by the termination of all services 
November 30.  Shawa asserted there is enough liquidity in the 
West Bank for banks to ship cash to their Gaza branches, 
provided cash shipments are permitted to enter Gaza.  The 
loss of check clearing services, however, will be disastrous 
for the Palestinian banking sector, according to Shawa, and 
an alternative currency to the NIS would have to be adopted. 
(Note:  BoP works primarily with Bank Hapoalim.  IDB provides 
almost all of Arab Bank's NIS check clearing needs.  End 
note.) 
 
¶4.  (C) Abu Hamdan noted that IDB had first warned Arab Bank 
of a November 30 termination date in May 2007.  Abu Hamdan 
and Shawa had both been hopeful that procedural changes and 
safeguards they and other banks had proposed since that time 
would be sufficient to allow Bank Hapoalim and IDB to 
maintain their correspondent relationships.  Abu Hamdan and 
Shawa stated separately that their optimism plummeted after 
the GOI designated Gaza as a "hostile entity" in September, 
and both Bank Hapoalim and IDB announced their intention to 
move forward with the termination of services.  Abu Hamdan 
asserted that Arab Bank and First International Bank of 
Israel had been in serious discussions on establishing ties 
until the GOI designation, after which talks ground to a 
halt. 
 
------------------- 
Israeli Postal Bank 
------------------- 
 
¶5.  (C) Abu Hamdan and Shawa said they continue to encourage 
efforts to have the Israeli state-owned Postal Bank assume 
responsibility for providing corespondent banking services to 
the West Bank and Gaza.  Palestine Monetary Authority (PMA) 
Governor Abed and Bank of Israel Fischer met on the margins 
of the recent World Bank/IMF meetings to discuss the issue, 
according to Shawa.  Abu Hamdan complained that the process 
has been extremely slow, noting that he provided Postal Bank 
with a copy of Arab Bank's service agreement with IDB in 
September, but has heard nothing since.  Neither BoP nor Arab 
Bank has any clear indication if the Postal Bank is willing 
to step in on November 30.  Shawa indicated that BoP has 
approached CitiBank Group and a number of major European 
banks in an attempt to secure NIS check clearing services, to 
no avail. 
WALLES