The Bank of Israel cannot compel Israeli banks to do business with banks in Gaza, but it can prevent them from suspending clearing activity.
Commercial banking sources believe that the Bank of Israel will reject the request by Bank Hapoalim (TASE: POLI; LSE:80OA), and Israel Discount Bank (TASE: DSCT) to cease their banking activity with banks in the Gaza Strip. Although the Bank of Israel cannot compel the Israeli banks to do business with banks in Gaza, it can prevent them from suspending clearing activity. The Bank of Israel is acting in its capacity as the clearance regulator, which has the authority to forbid commercial banks from withholding clearance services.
The Bank of Israel and the Ministry of Finance consider the activity of Israeli banks with their Palestinian counterparts in Gaza as a political matter with broad ramifications, and that this activity cannot be unilaterally abrogated without suitable alternatives. One alternative considered in the past year is to allow the Postal Bank provide banking services in Gaza. However, a decision to this effect has been delayed because of a dispute between Israel Postal Company Ltd. and Accountant General Shuki Oren over indemnification for future claims for the provision of these services.
Israel Post CEO Avi Hochman has said that without a government promise of full indemnification, the company will not provide banking services to Palestinian banks. Indemnification is necessary in the event that the Postal Bank is sued for a transaction under the Prohibition on Money Laundering Law (5670-2000) or the Prohibition on the Financing of Terrorism Law (5765-2004). The Postal Company and the Ministry of Finance have been discussing the scope of indemnification and how to pay it for several months without reaching agreement.
Published by Globes [online], Israel business news - www.globes-online.com - on November 18, 2008
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