UPDATE 1-Yellen says not willing to allow contagious bank runs to develop

(Adds quotes, details on financial stability council) By David Lawder NEW HAVEN, Conn., April 3 (Reuters) - U.S. Treasury Secretary Janet Yellen on Monday said deposit outflows from small and medium-sized banks were diminishing, but she was watching the situation closely and was "not willing to allow contagious runs to develop" in the U.S. banking system. Yellen told reporters after an event at Yale University that confidence in the banking system was strengthened by actions taken by the Treasury, Federal Reserve and Federal Deposit Insurance Corp after the failures of Silicon Valley Bank and Signature Bank. "My read is that outflows from smaller and medium-sized banks are diminishing, and matters are stabilizing, but it's a situation we're watching very closely," Yellen said. Asked whether the Financial Stability Oversight Council, the multi-regulator body charged with curbing systemic risks, had spent too much time on assessing risks of climate change and missed problems that led to the failures of Silicon Valley and Signature, Yellen disagreed, saying the body studies all potential financial risks. "We've focused on a range of issues including financial, risks and have not put all of our focus on climate risks," she said, adding that the body had also identified interest rate mismatches as a potential risk. "I don't think there's a fundamental problem with the banking system," she added. (Reporting by David Lawder; Editing by Mark Porter and Sonali Paul)

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