Nathan Bomey

USA TODAY

Federal Reserve Chair Janet Yellen on Wednesday defended the Fed's role in setting monetary policy devoid of political interests and pledged to tighten rules on big banks.

Her comments came as the Wells Fargo scandal reignites a political firestorm over the role of Washington in monitoring financial giants.

"We will hold the largest organizations to exceptionally high standards," Yellen testified before the House Financial Services Committee when asked whether the Fed would break up Wells Fargo.

She said executives at big banks must "be held accountable" for "wrongdoing" and that boards must regularly review executive compensation to prevent "compliance failures" and unethical treatment of customers.

Meanwhile, the Fed's monetary policy has drawn criticism from Republican presidential candidate Donald Trump, who accused Yellen during Monday's debate of setting monetary policy based on political motivations.

The Fed has raised interest rates only once since the Great Recession despite significant job gains and easy credit, saying that it would like inflation to be higher and that it has not wanted to jeopardize tepid economic growth.

Rep. Scott Garrett, R-N.J., seized Trump's mantle during Wednesday's hearing, saying "the Fed has an unacceptable cozy relationship" with the Obama administration and Democrats.

"As the saying goes, perception is reality," Garrett told Yellen. "Whether you like it or not, the public increasingly believes that the Fed’s independence is nothing more than a myth."

Asked whether politics motivates the Fed's decisions, Yellen testified, "I have never seen that on the part of any of my colleagues."

And, she added later, "I have certainly never been pressured in any way by the administration."

Multiple Democrats jumped to her defense.

"I am disturbed by anyone in a recent debate or anywhere who suggests that Chair Yellen is somehow acting politically," Rep. Carolyn Maloney, D-N.Y., said. "Nothing could be further from the truth."

Yellen's appearance before the committee came as Washington remains outraged over Wells Fargo's admission that it had opened potentially 2 million fake accounts without customers' permission.

The company said Tuesday that CEO John Stumpf had agreed to give up $41 million in unvested stock awards and that community banking chief Carrie Tolstedt would lose all of her unvested stock and would receive no additional retirement benefits.

"Is there anything you can do?" Rep. Stephen Lynch, D-Mass., asked. "Just get after them and make their life hell."

Yellen responded, "I think it is very important that senior management be held accountable" when there are "identifiable individuals who have been involved in wrongdoing."

Meanwhile, investors are watching closely for any hints on the trajectory of interest rates after the Fed opted this month to keep rates steady but signaled an increase is possible by the end of the year.

Yellen struck a similar tone Wednesday, saying that "we're really not seeing meaningful upward pressure on inflation" but warning that without a change soon, employment growth could cause the economy to "overheat."

"If we allow the economy to overheat, we could be faced with raising interest rates more rapidly than we want, which could jeopardize that good state of affairs we have come close to achieving," she testified.

Among the Fed's key objectives is to prevent big banks from becoming unwieldy and threatening the U.S. economy. Yellen told Congress that the Fed is considering raising capital requirements for big banks even as the companies have made significant progress in recent years.

She said the proposal "would result in a significant aggregate increase in capital requirements" for the largest financial institutions.

But she said that large and regional banks are generally "well capitalized" and have delivered "improved profitability since the depths of the financial crisis."

"Both large and regional institutions have seen robust growth in commercial and industrial lending, which supports sustainable job creation," Yellen said.

Yellen said the Fed is weighing a change that would overhaul the stress-test system for major global banks but would "have no effect on midsize banks or community financial institutions."

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.