FRANKFURT, May 21 (Reuters) - U.S. Treasury Secretary

Janet Yellen urged German bank executives on Tuesday to step up

efforts to comply with sanctions against Russia and shut down

efforts to circumvent them to avoid potential penalties

themselves that would cut off dollar access.

Yellen said at the start of a meeting with bankers that the

Treasury's new authority to hit banks with secondary sanctions

if they aid Russian military-related transactions had helped to

frustrate Russia's efforts to procure goods needed for its war

in Ukraine, but more work was needed.

"Russia continues to procure sensitive goods and to expand

its ability to domestically manufacture these goods. We must

remain vigilant and be more ambitious," Yellen said.

"I urge all institutions here to take heightened compliance

measures and to increase your focus on Russian evasion

attempts," Yellen said in prepared remarks for the meeting in

Frankfurt.

In an unusually direct warning, she told the executives to

police sanctions compliance among their banks' foreign branches

and subsidiaries and reach out to foreign correspondent banking

customers to do the same, especially in high-risk jurisdictions.

"Russia is desperate to obtain critical goods from advanced

economies like Germany and the United States," Yellen said. "We

must remain vigilant to prevent the Kremlin's ability to supply

its defense industrial base, and to access our financial systems

to do so."

Yellen's warning comes shortly after the U.S. Treasury

successfully pressed Austria's Raiffeisen Bank, the biggest

Western bank in Russia to ditch a deal involving a Russian

tycoon.

Earlier this month, Raiffeisen Bank International (RBI)

dropped a bid for a 1.5 billion euro ($1.6 billion)

industrial stake linked to Russian tycoon Oleg Deripaska after

intense U.S. pressure.

The deal's collapse was a fresh setback for the lender,

which faces criticism for its ties to Moscow more than two years

since Russia's invasion of Ukraine. The pressure also

underscored Washington's willingness to take European banks to

task over their Russia ties.

Raiffeisen Bank International was warned by the

U.S. Treasury in writing that its access to the U.S. financial

system could be curbed because of its Russia dealings, a person

who has seen this correspondence told Reuters.

On May 6, Deputy Treasury Secretary Wally Adeyemo sent a

letter to RBI, expressing concern about RBI's presence in Russia

as well as a $1.5 billion deal.

RBI's announcement followed weeks of pressure over its plan

to buy a stake in construction group Strabag, a move designed to

unlock bank funds frozen in Russia.

Yellen said the most concerning Russian sanctions evasion

activity was coming through China, the United Arab Emirates and

Turkey, but added that the Treasury "is working to disrupt

evasion wherever we see it, from Central Asia to the Caucasus

and throughout Europe."

FINANCIAL STABILITY QUESTIONS

Yellen, who is meeting with top bank executives on a visit

to Frankfurt before attending a meeting of G7 finance ministers

in Italy this week, also said she wanted their views on the

global economy and financial system stability.

She said that she sees the global economy as resilient,

outperforming expectations with risks broadly balanced and

financial conditions eased since last year's banking turmoil.

"We also remain vigilant to potential vulnerabilities,

including elevated levels of corporate debt, leverage and

liquidity mismatches in the non-bank sector, and strains in

commercial real estate markets," Yellen said.