Kyle Campbell

The Federal Reserve's top regulator told the Senate Banking Committee that new standards are needed for banks with more than $100 billion in assets — standards that the Fed has broad discretion to rewrite.

Vice Chair for Supervision Michael Barr will attempt to downplay the immediate threat of the banking crisis as limited to Silicon Valley Bank and Signature Bank, while calling for long-term reforms in congressional testimony this week.

The Federal Reserve also cited lack of deposit insurance and a reliance on the "speculation"-driven crypto market in its decision to deny Custodia's bid to become a state-chartered member bank.

The use of the Federal Reserve's emergency lending facilities was largely unchanged this week, indicating to some that the recent liquidity crisis isn't getting any worse.

Sen. Tim Scott, R-S.C., and others on the Banking Committee have requested CAMELS scores for the failed bank and various other supervisory information from the Fed.

The Federal Reserve wants a smaller balance sheet to help rein in inflation. But uncertainty in the banking system is pushing it in the opposite direction.

Financial tightening stemming from two recent bank collapses has served as its own check on inflation, according to Federal Reserve Chair Jerome Powell. He said the relatively small rate hike announced Wednesday was not the result of financial stability concerns.

Economists have warned since last summer that speedy monetary tightening could be destabilizing. This week, the Federal Reserve will decide whether to stay on that course.

Politicians on both sides of the aisle say the regional reserve bank deserves special scrutiny for Silicon Valley bank's failure. But larger-bank supervision tends to center on the Fed Board of Governors.

The liquidity facility launched by the central bank over the weekend saw limited uptake compared to other emergency funding options.