The Bank of Israel today notified Bank Hapoalim (TASE: POLI; LSE:80OA) and Israel Discount Bank (TASE: DSCT) that they may cease their activity with banks in the Gaza Strip, as they requested. Over the past year, the Bank of Israel rejected the banks' request to halt their clearing activity, and compelled them to continue it.
The Bank of Israel has the authority as the clearing administrator to forbid commercial banks from suspending their clearing activity. Banking sources expressed their satisfaction at the Bank of Israel's decision.
The Bank of Israel declined to comment.
The Bank of Israel and the Ministry of Finance considered the activity of Israeli banks with their Palestinian counterparts in Gaza as a political issue with widespread ramifications. For this reason, they refused to unilaterally suspend this activity without a suitable alternative in place. One alternative considered was allowing the Postal Bank to provide banking services in Gaza. However, no decision has been made on this because of a dispute between Israel Postal Company Ltd., which owns the Postal Bank, and the Ministry of Finance Accountant General over indemnification for future claims arising from such activity.
Israel Post has said that without a government guarantee for full indemnification, it will not provide banking services to Palestinian banks. The indemnification is necessary if 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).
Published by Globes [online], Israel business news - www.globes-online.com - on December 31, 2008
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