NIIGATA: The current banking environment and pressures on earnings of some U.S. regional banks may lead to some concentration in the sector, and regulators will likely be open to such mergers, Treasury Secretary Janet Yellen said on Saturday.

Yellen told Reuters she was not seeing evidence of pressure on smaller community banks, which had a large percentage of insured deposits. She expressed confidence that nearly all banks had access to sufficient liquidity to guard against unexpected deposit outflows from uninsured depositors.

However, she said a certain degree of consolidation in the regional and midsize banking sector could occur. She declined to discuss any specific banks.

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“This might be an environment in which we’re going to see more mergers, and you know, that’s something I think the regulators will be open to, if it occurs,” she said in an interview on the sidelines of meetings of finance officials from the Group of Seven rich nations n Japan.

Yellen sought to reassure her G7 partners this week that the U.S. financial system was stable, saying the United States had taken action to strengthen confidence in its banking system after the failure of three regional banks since mid-March.

On Friday she told Bloomberg TV that all three of those banks had tended to have substantial losses and a very high proportion of uninsured deposits but that the overall banking system was well-capitalized and still had “very solid earnings.”

Shares of major U.S. regional lenders have been more volatile in recent weeks, with investors still wary about the stability of mid-sized banks.

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The KBW Regional Banking index, which has fallen nearly 14% so far this month, rose 0.39% on Friday, but PacWest Bancorp, which lost 23% on Thursday after reporting a decline in deposits, dropped a further 3%.

Yellen noted that pressure on a bank’s stock could unsettle uninsured depositors. “The unfortunate dynamic is that once a bank’s stock is under pressure, it can trigger concern among uninsured depositors … even though the bank has adequate capital and liquidity,” she said.