BOI GOVERNOR FISCHER "FRUSTRATED" BY

C O N F I D E N T I A L TEL AVIV 000661 SIPDIS SIPDIS PLEASE PASS TO TREASURY FOR DAS GLASER; L FOR DOLAN E.O. 12958: DECL: 03/19/2018 TAGS: EFIN PTER KTFN KWBG IS SUBJECT: BOI GOVERNOR FISCHER "FRUSTRATED" BY ISRAELI-PALESTINIAN BANKING RELATIONS REF: TEL AVIV 624 Classified By: Ambassador Richard H. Jones for reasons 1.4 (b/d) ¶1. (C) In a March 18 meeting with the Ambassador, Governor of the Bank of Israel Stanley Fischer characterized as "very frustrating," ongoing problems with the Israeli-Palestinian correspondent banking relationship (reftel). Fischer explained that one of the main problems in resolving the issue is that it falls under the Finance Ministry's purview. Because the ministry, and particularly its Director General, are so overloaded, they do not have the time needed to devote to it. While Bank Hapoalim and Israel Discount Bank continue to clear checks for Palestinian banks, Fischer said that the Ministry of Finance is still negotiating with the Israel Postal Bank (IPB) regarding its taking over the function. According to Fischer, the law states that government-owned corporations, such as the IPB, are required to make a profit. However, the government can order such a corporation to engage in non-profit-generating activities for reasons of national interest. However, to enforce such an order, the Knesset Finance Committee must endorse it, and no one wants to argue publicly on behalf of maintaining services for Palestinians during this difficult period in Israel-Palestinian relations, even if doing so is in Israel's national interest. ¶2. (C) Therefore, the strategy has been to try to persuade rather than compel the IPB to assume the correspondence function. However, the bank has been increasing its demands, requesting full indemnity from any possible liability arising from correspondence activities. According to Fischer, agreeing to this would set a bad precedent. While the Ministry of Justice has explicitly stated that no one gets immunity from the law, it has given assurances that if the bank adheres reasonably to all of the necessary procedures to check out with whom it is doing business, it is unlikely to face legal problems in Israel. Regarding the IPB's demand for indemnity from the U.S. Federal Reserve Board, Fischer said that the Fed is not in a position to provide such assurances. (Note: The Fed is, in any case, not able to protect a bank against civil action in the U.S. End Note). His overall take on the issue is that if the IPB assumes responsibility for the correspondent banking issue and "doesn't do something stupid, it won't get into trouble." ********************************************* ******************** Visit Embassy Tel Aviv's Classified Website: http://www.state.sgov.gov/p/nea/telaviv You can also access this site through the State Department's Classified SIPRNET website. ********************************************* ******************** JONES