US Treasury Secretary Janet Yellen expressed optimism about the resilience of the global economy despite facing challenging geopolitical circumstances on Tuesday. She urged European banks to strengthen their compliance measures and pay closer attention to evasion attempts by Russian entities. Yellen emphasized the importance of overseas branches applying sanctions compliance policies rigorously, particularly in high-risk jurisdictions.
Yellen highlighted that the most alarming instances of Russian sanctions evasion have occurred through countries like China, UAE, and Turkey, with Europe also under close scrutiny. In response to warnings about secondary financial institution sanctions, banks have taken steps to strengthen their compliance measures. Yellen noted that the actions of the global financial sector have been instrumental in impeding Russia’s ability to access battlefield goods.
While acknowledging that global financial conditions have improved since the turmoil in the banking sector in 2023, Yellen stressed the need to remain vigilant about issues like elevated corporate debt, leverage, and liquidity mismatches in the non-bank sector, as well as strains in commercial real estate. She also highlighted the necessity for the US and Europe to coordinate their responses to China’s industrial policy, which poses a threat to firms in both regions as well as in emerging markets. Yellen emphasized that the US is not looking to sever ties with China but aims to diversify its supply chains to mitigate risks.
Regarding US tax subsidies for clean energy investments, Yellen clarified that this move is not indicative of American protectionism and pointed out that European firms are actively participating in such initiatives. The market reaction to Yellen’s comments has so far been subdued, with the US Dollar Index remaining stable at 104.58.
