Yellen warns banks may further tighten lending

Treasury Secretary Janet Yellen in an interview broadcast on Sunday warned that banks might further tighten lending in the wake of the abrupt collapses of Silicon Valley Bank and Signature Bank.

"Banks are likely to become somewhat more cautious in this environment. We already saw some tightening of lending standards in the banking system prior to that episode, and there may be some more to come," Yellen said on CNN's "Fareed Zakaria GPS."

She also said that the Biden administration "took rapid action" to deal with the bank failures, citing "idiosyncratic features that caused them to fail," and said the banking system has appeared to stabilize after those actions were taken.

California’s Silicon Valley Bank shuttered suddenly last month, marking the largest bank failure in the U.S. since the 2008 financial crisis. The collapse was followed shortly by the closure of New York’s Signature Bank in what became the second-largest bank failure in that period. 

"We're, of course, monitoring things carefully," Yellen said on CNN. "But I think the actions that we've taken have stemmed the systemic threat that existed— existed because of the failure of those banks."

The banks' caution "does tend to lead to somewhat greater restriction in credit that could be a substitute for further pricing— further interest rate hikes that the Fed needs to make," Yellen added. After prices soared last year, the Fed has hiked up interest rates in an effort to tamp down inflation.

"But I'm not seeing anything at this time that is dramatic enough or significant enough, in my view, to significantly change the outlook," she said. "So, I think the outlook remains one for moderate growth and continued strong labor market with inflation coming down."