Yellen Warns Israel Against Cutting off Palestinian Banks

Treasury Secretary Janet L. Yellen warned Israel on Thursday against cutting off ties between Palestinian and Israeli banks, arguing that such a move would further destabilize the economy of the West Bank at a time when Palestinians are already facing dire economic conditions.

Ms. Yellen’s comments came in the wake of Israel’s decision on Wednesday to withhold tax revenue from the Palestinian Authority in retaliation for three European countries unilaterally agreeing to recognize a Palestinian state. Ms. Yellen and other top economic officials from the Group of 7 nations are expected to discuss the matter and the humanitarian situation in Gaza during their summit in Stresa, Italy, which begins on Thursday.

“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,” Ms. Yellen said during remarks ahead of a news conference.

Ms. Yellen added that the banking channels were critical for processing transactions that allow $8 billion a year of imports of food, fuel and electricity from Israel and $2 billion of Palestinian exports.

The war in Gaza is one of several geopolitical crises that are weighing on the global economy. The economic policymakers are also planning to discuss Russia’s war in Ukraine and continue deliberations over how to use more than $300 billion of frozen Russian central bank assets to provide Ukraine with additional aid. Officials from the Group of 7 will also be discussing ways to tighten sanctions on Russia and how to prevent China from providing the country with military support.

Ms. Yellen said on Thursday that the plight of the Palestinians would be a topic of discussion with her counterparts and that a move to