U.S. Treasury Secretary Janet Yellen on Thursday voiced concern over a threat from Israel to cut off Palestinian banks from their Israeli correspondent lenders, warning of the risk of a "humanitarian crisis" if Tel Aviv closes crucial financing channel to the occupied territories.
Yellen told a news conference ahead of a G-7 finance ministers meeting beginning on Friday that the U.S. and its partners "need to do everything possible to increase humanitarian assistance to Palestinians in Gaza, to curtail violence in the West Bank, and to stabilize the West Bank's economy."
"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," Yellen told reporters in the lakeside resort town of Stresa in northern Italy.
Yellen said it was important to keep open the Israeli-Palestinian correspondent banking relationships to allow battered economies in the West Bank and Gaza to function and help ensure security.
"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," she said.
She said she would bring up the issue at the meeting of the Group of Seven industrial democracies. "I expect other countries to express concern about the impact of such a decision on the West Bank economy. I think this would have a very adverse effect also on Israel."
Asked what the United States and G-7 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."
She also repeated U.S. concerns about Israel blocking money it collects for the Palestinian Authority, saying it "threatens economic stability in the 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 West Bank.
But Israel has blocked transfers since shortly after the Oct. 7 attacks by the Palestinian resistance group Hamas.
Since then, Israel's relentless strikes have killed more than 35,700 Palestinians, mostly women and children, in the Gaza Strip, according to local health officials.
Hamas incursion resulted in the death of more than 1,170 people in Israel, according to Israeli figures.
"My team and I have also engaged directly with the Israeli government to urge action that would bolster the Palestinian economy and, I believe, Israel's own security," Yellen said.
Financial tensions between Israel and the U.S. have risen over U.S. sanctions imposed on Israeli settlers in the West Bank.
On Wednesday, Norway, with Ireland and Spain, announced it would recognize a Palestinian state from May 28, a move that has angered Israel.
Following the decision, Israeli Finance Minister Bezalel Smotrich threatened to stop transferring tax funds to the Palestinian Authority and to end Norway's role in facilitating the transfers.
"Norway was the first to unilaterally recognize a Palestinian state today, and it cannot be a partner in anything related to Judea and Samaria," Smotrich wrote to Netanyahu in a letter on Wednesday, using the Biblical term for the occupied West Bank.
"I intend to stop transferring the funds to (Norway) and demand the return of all the funds transferred" until now, he added, without specifying how much money had been sent to Norway as part of this agreement.
He also said that he "does not intend to extend the indemnity to correspondent banks that transfer funds from the end of the coming month."
The Israeli cabinet this year approved a plan to transfer to Norway Palestinian tax funds designated for the Palestinian Authority for its staff in Gaza.