WASHINGTON — Federal Reserve Board Chair Janet Yellen faced tough questions Wednesday by House Financial Services Committee lawmakers over the central bank's regulatory treatment of big banks.

Several members from both political parties homed in on the Fed's interest payments to banks for excess reserves held at the Fed, arguing that the payments are a giveaway to financial institutions. They also suggested the central bank has failed to adequately police Wall Street even after it was granted new powers by the Dodd-Frank Act of 2010.

Yellen said the interest payments are an "essential tool" to monetary policy, one first granted by Congress in 2006, and contended that regulators had made the system safer.

Following are four takeaways from the hearing:

Interest on Excess Reserves

During the past few months, the chorus of lawmakers and presidential candidates questioning the Fed's ability to pay interest on excess reserves has been steadily growing. Sens. Ted Cruz, R-Tex., and Rand Paul, R-Ky., along with Sen. Bernie Sanders, D-Vt., have all criticized the payments.

But Wednesday marked one of the first times that top members of the House Financial Services Committee, the same body that gave the Fed the power a decade ago, questioned how it was being used.

"This money is going to big banks; it is a subsidy to keep them from lending money," said Rep. Maxine Waters, the top Democrat on the panel. "Congress could, if it decided, take [this authority] away."

House Financial Services Committee Chairman Jeb Hensarling also questioned the payments.

"I'm trying to figure out what precisely is 'traditional' about this current approach where the Fed … subsidizes deposit rates for some of the biggest banks in our country, which can distort, as you well know, real asset allocation and constrain economic opportunity," the Texas Republican said.

Congress first gave the Fed authority to pay interest on excess reserves in 2006, but it was not put in effect until the financial crisis. Since then, the Fed has argued it is vital implement for monetary policy.

"It's an essential tool that we need to adjust the level of short-term interest rates," Yellen said, noting that it is "widely used" by other central banks.

Yellen said reserves held at the Fed have helped finance higher yielding assets on its balance sheet that returned $600 billion to taxpayers between 2008 and 2015.

Still, Waters urged the Fed to explore other means to control interest rates.

"As you continue to embark on the path of raising rates, I want to explore the alternative approaches that may exist for the Federal Reserve to do so in a manner that does not rely so heavily on paying massive sums to private-sector banks to hold onto the reserves they maintain at the Fed," she said.

She also noted that it was a rarity for herself and Hensarling to agree on such an issue.

But Yellen warned that eliminating this power would be a mistake.

"If we don't pay interest on reserves and must use another technique to adjust short-term interest rates, likely we will be reduced to shrink our balance sheet in a rapid fashion and the total amount of money going from the Federal Reserve to taxpayers will be significantly diminished," Yellen said. "In addition ... it would have very adverse effects on the economy."

(For more on the economic consequences of eliminating the Fed's powers, see story here.)

Living Wills

Lawmakers also pressed Yellen on why the Fed has not taken tougher actions against the big banks following the passage of Dodd-Frank, particularly when it comes to resolution plans the big banks must submit to regulators for review.

"Many of us have been very patient about the implementation of the living wills," Waters said. "I know that you have to give careful consideration to all of this but after one, not two, but five submissions the Federal Reserve has yet to impose consequences for living wills that are not credible."

Under Dodd-Frank, the regulators are required to review living wills every year. If the regulators determine the wills are not credible, they must give banks a year to fix them. After that, regulators are authorized to go as far as requiring asset sales and other steps in order to ensure an institution is capable of failing without taking down the broader economy.

But so far, regulators have stopped short of saying the plans aren't credible. The Federal Deposit Insurance Corp. and Fed last publicly evaluated the plans in 2014. Though the agencies sharply criticized the plans, the Fed refused to declare them as not credible. An evaluation of the 2015 living-will submissions is expected soon.

"What can we do about this?" Waters said. "It is time that we understand that we have given a lot of opportunities to the banks to get it right, and they haven't done that."

Rep. Brad Sherman, D-Calif., said "too big to fail should be too big to exist" and accused regulators of going light on bankers responsible for the crisis.

The Justice Department "won't put anybody in jail," Sherman told Yellen. "The solution is [to] use your power under FSOC to break them up."

But Yellen said breaking up the banks isn't necessary.

"We are using our power to make sure that a systemically important institution could fail and it would not have systemic consequences for the country," she said. "We have done many things to diminish the odds that they would fail."

Regulatory Oversight

Rep. Randy Neugebauer R-Tex., said the Fed's supervision of banks is interfering with its mandate to increase employment, arguing that regulatory burdens are hampering financial institutions.

"You have this huge regulatory structure" that is "killing jobs," Neugebauer said.

He added that the Fed should do a cost-benefit analysis to determine whether regulations put in place to keep the system safe are coming at a detriment to the economy.

"It is appropriate to evaluate how the system is working and we do that on an ongoing process," Yellen said, but she added that Dodd-Frank still hasn't been fully implemented.

Rep. Patrick McHenry, R-N.C., also said the Fed might be overstepping when examiners demand to be part of bank board meetings, but Yellen disagreed.

"I am not certain that it is inappropriate," she said.

Negative Interest Rates

Several lawmakers asked if the Fed could implement negative interest rates, a policy that both the European Central Bank and the Bank of Japan have pursued to stimulate the economy further, but Yellen said she was not sure if the Fed could do so legally.

"I would say that remains a question that we still would need to investigate more thoroughly," Yellen said. She added that the Federal Open Market Committee considered it in 2010 but that "we didn't fully look at the legal issues around that."

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