Problems with the Volcker Rule

After the 07/08 financial crisis, many believe that the reintroduction of the Volcker rule would have prevented such a catastrophe. Alan S Binder, the former vice-chair of the Federal Reserve (FED) wrote about the practical problems surrounding the Volcker Rule in his book, "After the Music Stopped."

1. How do regulators distinguish between proprietary trading for the bank`s own account and market making on behalf of clients?

(Answer: With great difficulty.)

2. How can they tell hedging from gambling?
(Answer: Only by knowing the entire portfolio.)

3. If proprietary trading is chased out of heavily supervised commercial banks, where will it go? To less-well supervised investment banks? To totally unsupervised hedge funds? Would that make the financial system safer?
(Answer: It is not obvious.)

4. What if a giant nonbank investment house with a huge trading book was on the verge of failure?

(Answer: That doesn`t sound too appealing.)