US Treasury Secretary Janet Yellen said banks are likely to become more cautious and tighten lending in the wake of two recent bank collapses, which could negate the need for the US Federal Reserve to continue raising interest rates.
Yellen added, according to an interview published by CNN, on Saturday, that monetary policy measures aimed at stopping the systemic threat resulting from the collapse of the “Silicon Valley” and “Signature” banks last month caused the stability of deposit outflows, and “things became calm.” .
“Banks are likely to become somewhat more cautious in this environment,” Yellen said in the interview. “We’ve already seen some tightening of lending standards in the banking system prior to that incident, and there may be more to come.”
She added that this would lead to a restriction of credit in the economy, which “could be an alternative to further increases in interest rates that the US Federal Reserve must approve.”
The weekly budget data issued by the US Federal Reserve did not show a fundamental deterioration in bank lending, but it does show that deposit outflows have stabilized in the past two weeks compared to the wave caused by the collapse of Silicon Valley and Signature banks.
dollar dominance
Yellen explained that US-led sanctions and export restrictions on Russia are depriving Moscow of materials needed for the war in Ukraine, and that the $60-per-barrel cap on Russian oil imposed by Western countries is turning Moscow’s projected budget surpluses into deficits.
Yellen said that sanctions and restrictions on exports forced Russia to turn to Iran and North Korea to obtain military equipment and supplies, and that the United States was taking steps to reduce evasion of sanctions.
“But we believe that the army of Russian President Vladimir Putin is already suffering from a shortage of the equipment it needs in the war,” she added.
Asked whether the sanctions could undermine the dollar’s role as the world’s reserve currency, Yellen acknowledged the potential risks.
“Therefore, there is a risk when we use financial sanctions linked to the role of the dollar, which over time could undermine the dominance of the dollar, as you say. But this is a very important tool that we try to use wisely,” she said.
Yellen added that sanctions are most effective when used with the support of allies.
Sanctions create a desire on the part of China, Russia and Iran to find an alternative to the dollar, but this is “not easy” to achieve due to its unique characteristics of being backed by the safest and most liquid asset in the world, US Treasury bills.
