House Democrats and Republicans agreed during a hearing Wednesday that the Federal Reserve should have done more to stop the meltdown of Silicon Valley Bank. They disagreed on what can be done to prevent it from happening again.

Federal Reserve Vice Chair of Supervision Michael Barr, FDIC Chair Martin Gruenberg and Treasury undersecretary Nellie Liang were pressed for a second straight day to explain how they handled the failure of the nation’s 16th-largest bank earlier this month. On Tuesday, they took questions from the Senate Banking Committee. On Wednesday they went before the House Financial Services Committee for roughly five hours.

One subject united House lawmakers: the Fed’s performance as Silicon Valley Bank’s primary regulator. The committee’s top Republican Patrick McHenry and top Democrat Maxine Waters both pressed Barr to say more about why he and his staff didn’t act more aggressively as Fed supervisors identified multiple problems at Silicon Valley Bank in 2021 and 2022. Pete Sessions, a Republican, explicitly asked all three witnesses to acknowledge their own contributions to the bank’s unraveling.

“I have heard none of you three accept real responsibility for your role in this endeavor,” he said.

Barr’s response: “I agree with you. I think we need to take a good hard look inside at the Federal Reserve and our supervision, at our regulation. I think we need to be humble about that. And I think we're going to be unflinching in our review.”

“Does that include your role?” Sessions said. Barr: “Absolutely.”

Where the lawmakers diverged was on the topic of fixes. Barr has suggested that he wants to undo some of the rules governing regional banks that were loosened at the end of last decade. Those changes in 2018 and 2019 released banks that were the size of Silicon Valley Bank from some of the strictest requirements imposed in the aftermath of the 2008 financial crisis, a downturn that pushed the banking system to the brink.

One key revision in 2019 was the Fed’s decision to exempt banks with $100-$250 billion in assets from maintaining a standardized "liquidity coverage ratio" that is designed to show whether a lender has enough high-quality liquid assets to survive a crisis. Another was a decision to let most small and mid-sized institutions opt out of deducting paper losses on bonds from key regulatory capital levels. Silicon Valley Bank, which had $209 billion in assets at the time of its failure, was among the banks that benefitted from both of those changes.

Barr on Wednesday reiterated his support for revising some of the 2019 rules, saying “I think it's really quite important that we strengthen capital and liquidity requirements in the system.”

Several Democrats were explicit that such changes needed to be aggressive, with smaller banks held to some of the same standards applied to the largest financial institutions.

“I am frustrated that time and time again, we fail to regulate them like [the largest U.S. banks] and as a result we find ourselves in situations like the one that we're currently in,” said Nydia Velázquez, a Democratic committee member. “Without proper regulations that account for the systemic risk profile of a bank, we are incentivizing bankers to search for yield and inviting moral hazard.”

But several Republicans said the Fed already has all the tools needed to hold banks like Silicon Valley Bank accountable. They expressed concerns about possible changes to existing capital or liquidity rules that might harm banks that didn’t take the same types of risks.

“Are you just looking for any reason correlated or not to justify increasing capital requirements of banks?” Wagner asked Barr.

The question of how small banks get treated by regulators is emerging as a defining debate in the aftermath of Silicon Valley Bank’s failure.

Several Republican lawmakers, for example, asked Gruenberg whether small community banks would be asked to pay for the failures of Silicon Valley Bank and New York’s Signature Bank, which was also seized earlier this month. That could happen in the form of a new assessment from the FDIC that would fund the regulator's pledge of guaranteeing all deposits from those failed institutions.

“Could you elaborate if smaller community banks in Texas, where I'm from, will be left responsible for bailing out the banks in California and New York?” said Roger Williams, a Republican committee member from that state.

Gruenberg said the FDIC does have “discretion” on that assessment and would have more to say on the subject in May. “We're going to be keenly sensitive to the impact on community banks.”

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance