US warns of severe impact if Israel cuts ties with Palestinian banks

US Treasury Secretary Janet Yellen has warned of the risk of a "humanitarian crisis" if Israel cuts off a crucial financing channel to Palestinian banks.

"I'm particularly concerned by Israel's threats to take action that would lead to Palestinian banks being cut off from their Israeli correspondent banks," she told reporters in Stresa in northern Italy on Thursday, where a meeting of G7 finance ministers opens later.

"These banking channels are critical for processing transactions that enable almost $8 billion a year in imports from Israel, including electricity, water, fuel, and food, as well as facilitating almost $2 billion a year in exports on which Palestinian livelihoods depend."

Asked what the United States and G7 might do in response, Yellen said she had written to Israeli Prime Minister Benjamin Netanyahu months ago about the economic situation in the occupied West Bank.

"And as I said, I believe it would create a humanitarian crisis in due course if Palestinian banks are cut off from Israeli correspondence," she said.

"Certainly, this is a view that we will voice."

'It will also negatively affect Israel'

Yellen said the issue may be discussed at the G7, adding: "I expect other countries to express concern about the impact of such a decision on the occupied West Bank economy.

"I think this would have a very adverse effect also on Israel."

She also repeated US concerns about Israel blocking money it collects for the Palestinian Authority, saying it "threatens economic stability in the (occupied) West Bank".

Under peace agreements brokered in part by Norway in the 1990s, Israel collects money for the Palestinian Authority, which exercises limited autonomy in parts of the occupied West Bank.

But Israel has blocked transfers since launching a brutal war on Gaza following the incursion on October 7 by the Palestinian resistance group Hamas, which governs the besieged territory.