Recent financial market turmoil underscores the need for ”forceful action” by European leaders to curb the continent’s debt crisis says the Federal Reserve Vice Chairman Janet Yellen.

Today in a speech in Chicago, Yellen said that the U.S. banks ”have manageable levels of direct exposure to the peripheral European countries but more substantial links to financial institutions in the larger Europeans economies.” She also says that the central bank will do anything it can to limit harm to the U.S. from Europe. Yellen and her esteemed colleagues are concerned that Europe’s sovereign-debt crisis may damage the very weak U.S. economic recovery. The U.S. wouldn’t be able to escape consequences of a ”blowup” in Europe says the Fed Chairman Ben. S. Bernanke.

”The continued rise in sovereign debt spreads for some countries more generalized market volatility, and political turmoil that we have seen in recent days speak to the need for forceful action to stabilize the situation,” Yellen, 65, said at the Chicago Fed’s annual international banking conference.

The central bank’s Federal Open Market Committee said in a November 2 report statement that ”there are significant downside risks to the economic outlook, including strains in global financial markets.” The same day, Bernanke said in a conference that the risks include ”concerns about European fiscal and banking issues.”

In her speech today, Yellen reiterated those points saying that ”further intensification of financial disruptions in Europe could lead to a deterioration of financial conditions in the United States.” Some, unspecified, ”major European banks” get their financing from U.S. money-market funds and ”appear to be facing significant funding pressures,” she said.

”We are monitoring European developments very closely, and we will continue to do all that we can to mitigate the consequence of any adverse developments abroad on the U.S. financial system,” said Yellen.

Yellen says regulators are ”actively engaged” in making sure U.S. financial firms are managing risks ”appropriately,” and the Fed has their currency-swap lines in place with other central banks to ”limit the spread of funding stresses.”

At 4:14 p.m. in New York, U.S. stocks remained higher after the remarks, with the Standard & Poor’s 500 Index up 2 percent to 1,263.85.

European leaders are trying very hard to contain a falloff in investor confidence that spread to Italy’s bonds this week. That country’s Senate approved a budget bill today, paving the right way for a new government possibly being led by former European Union Competition Commissioner Mario Monti.

”Publishing all supervisory information we have, given the course of our work with the banks, is probably not something we’re contemplating,” Yellen said. ”But information sufficient to give market participants information about the health of major financial institutions and their ability to withstand stresses and shocks I think is important,” she said.