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Federal Reserve Chair Janet Yellen, asked in a hearing Wednesday about ways the Fed is easing the regulatory burden on smaller financial institutions, pointed to reduced exam times and simplified pre-exam requests for documentation. On interest rates, she didn't rule out a March rate increase.

Yellen was delivering the Fed's semiannual monetary policy report before the House Financial Services Committee. Today, she testifies on the same topic before the Senate Banking Committee.

Yesterday, both Reps. Gwen Moore, D-Wis., and Rep. Bill Posey, R-Fla., asked Yellen about the regulatory burden faced by credit unions and community banks. The Fed examines only banking institutions – not credit unions – and she focused on that in her replies.

Besides shortening exam times and simplifying document requests, Yellen said, the Fed is also focusing exams on areas of greatest risk, conducting examiner training to ensure that guidance is applied consistently and providing forums to let smaller financial institutions know which areas of regulation and supervision are relevant to them.

Regarding monetary policy, Yellen noted some risks that have increased recently, such as weakness in financial markets. She told the committee that she expects a gradual path to monetary normalization but did not rule out another increase in the federal funds target rate in March.

She also fielded many questions from committee members on both sides of aisle on the interest on excess reserves that the Fed pays to financial institutions. In 2006, the Fed was given the authority by Congress to pay interest on excess reserves, but several committee members, including Chairman Jeb Hensarling, R-Texas, said the payments amounted to a handout to financial institutions.