The cover of the October 2010 issue of Bloomberg Markets magazine shows a photo of Ben Bernanke, chairman of the Federal Reserve, testifying before the Senate Banking Committee on Capitol Hill in Washington, D.C., on December 3, 2009. Photograph: Brooks Kraft/Bloomberg Markets via Bloomberg

The new financial regulation law gives the Federal Reserve chairman the authority to force banks to raise capital and tighten lending -- just as he's trying to steer monetary policy in the opposite direction.

In November 2009, Senate Banking Committee Chairman Christopher Dodd advanced a radical proposal: to create a super-regulator that would take over most of the bank supervision that had been done by the Federal Reserve System, the...