• By
• Victoria McGrane
• CONNECT

NEW YORK–Federal Reserve Chairwoman Janet Yellen said that some of Europe’s economic challenges spring from the still-unfinished work of strengthening its banking sector after the 2008 financial crisis.

Europe has drawn criticism from economists for failing to do more to beef up its banks’ capital cushions against losses and clean up their balance sheets, whereas the U.S. took a more aggressive tack in recapitalizing its banks starting with the 2009 stress tests conducted by the Fed.

“Europe is being held back by adjustments in their banking sector and problems in the banking sector,” Ms. Yellen said during a question-and-answer session following a speech to the Economic Club of New York on Wednesday. “I think we have a much stronger banking sector in the U.S.”

Ms. Yellen touted the work U.S. regulators have done to strengthen the financial system and to reduce the risk that large financial institutions will collapse under stress.

“I do believe that we are making very meaningful progress in that task. There’s much more and higher quality capital and more liquidity in the U.S. banking system. We have raised capital standards very meaningfully,” particularly for those firms that pose the biggest threat to the financial system, Ms. Yellen said.

She added that “there may be some further changes that we will put into effect to raise capital standards for larger firms,” an issue she addressed in separate remarks Tuesday.

She said U.S. banks generally “are well on the track to meeting those higher capital standards.” Moreover, her view is that U.S. banks “look to lend they want to provide credit and they are supporting the recovery.”

Ms. Yellen did say that Europe has made “meaningful progress” in trying to form a banking union that would help the regional economy.European regulators are working with the Fed to improve capital standards and a “level playing field,” she said. “Their economy, however, is somewhat more constrained by the need of banking organizations to build capital.”