STORY: Sharma's comments came on the day that California banking regulators moved quickly to close startup-focused lender SVB Financial Group , the largest bank failure since the financial crisis, a sudden collapse that prompted the global banking sector to shed billions in market value.

"The Fed needs to use some of its other tools like understanding the bank balance sheets," said Sharma. "And create liquidity tools to help banks manage through this phase, or this part of the [rate] cycle."