Wake Up the Banking Police The Volcker Rule has landed. Will the United States financial system be safer and sounder as a result? That's the goal, after all, of the almost 1,000-page document approved by banking, securities and commodities regulators last week. Years in the making, the rule is supposed to reduce the risks that a major bank will have to be rescued by taxpayers if some of its bets go bad. The rule, named for Paul A. Volcker, the former Federal Reserve Board chairman, was supposed to be the 21st century's answer to the Glass-Steagall Act, the Depression-era law that separated investment banks from their commercial brethren. To at least one financial historian, the emergence of the new rule last week was momentous. "The passage of the Volcker Rule represents a step partway back to the Glass-Steagall regime that has historical significance for helping to give us four to five decades of relative financial stability from the 1930s to the 1980s," said Richard E. Sylla, the Henry Kaufman professor of the history of financial institutions and markets at New York University. Even if we don't see a lot of actions against violators, the mere fact that the rule is on the books will make banks think twice before engaging in activities that might result in actionable violations. As a result, Professor Sylla said, "the financial system should become more responsible and safer." Let's hope so. Still, Mr. Sylla's point about actions against violators raises perhaps the most crucial question surrounding this new rule. How assiduously will the regulators charged with enforcing it do their jobs? We learned all too well during the lead-up to the recent financial crisis what happens when bank watchdogs snooze. There were plenty of regulations on the books that could have been enforced to rein in reckless lenders. But the police force was disengaged, or worse, protecting the institutions it was supposed to oversee. Put simply, the success or failure of the Volcker Rule will depend upon the appetite of financial regulators to regulate. This is always the case, of course, with regulation. But it is particularly so with the Volcker Rule because some of its most important measures are open to interpretation. Consider the exceptions to the rule's ban on proprietary trading - the bets that a bank can make using its own money. Proprietary trading was what hammered JPMorgan Chase in the incident known as the London whale; curbing these types of transactions was central to the new rule and to protecting taxpayers from future bank bailouts. But there are always exceptions to any rule. And in proprietary trading, the Volcker Rule makes an exception that relates to a bank's liquidity management. Liquidity represents a bank's ready cash needed to meet its obligations. If an institution can meet these obligations without generating a loss, it's considered to have sufficient liquidity. Reading the rule is a tough slog through legal jargon. The bar on proprietary trading, for example, does not include "any purchase or sale of a security by a banking entity for the purpose of liquidity management in accordance with a documented liquidity management plan of the banking entity." If that's not enough, the rule goes on to warn that these exempted transactions should exclude purchases "for the purpose of short-term resale, benefiting from actual or expected short-term price movements, realizing short-term arbitrage profits, or hedging a position taken for such short-term purposes." Are these exceptions big enough for the London whale to swim through? We don't really know: It would be up to regulators to ensure that proprietary bets aren't being improperly labeled liquidity management. A second aspect of the rule granting financial institutions loads of leeway relates to their so-called market-making activities. These transactions are entered into by a bank but are ultimately for the benefit of its customers. In this area, sayeth the rule: "The amount, types and risks of the financial instruments in the trading desk's market maker inventory are designed not to exceed, on an ongoing basis, the reasonably expected near-term demands of clients, customers or counterparties." Someone will have to police whether a bank puts on a trade that it says is for market-making activities but in reality is a proprietary bet. "You can drive a pretty large truck through that exception," said David A. Skeel, a law professor and an expert in bankruptcy at the University of Pennsylvania Law School. As a result, he said: "The success or failure of the rule is really going to come down to what the bank regulators will do to enforce it. It can't work unless it's aggressively enforced, but it's hard to imagine it's going to be aggressively enforced. That's hard to imagine because banking regulators are going to be the main enforcers of the Volcker Rule. For the most part (excepting the Federal Deposit Insurance Corporation), these are the very people who didn't see the mortgage crisis bearing down on them. One reason: Where the big banks are concerned, the overseers often favor the overseen. And yet regulators for the most part have not been held accountable for their woeful performance in the years leading up to the financial debacle. Instead, they have received even greater powers. That no penalties have been exacted for the recent regulatory lapses means they are more likely to continue, Mr. Skeel said. "If there were some sort of penalty for regulators who cross a boundary in failing to enforce the Volcker Rule, that would be interesting," he said. Even if there aren't immediate obvious abuses, it would give you an opportunity to ask if there is any regulator whose job or pay ought to be in jeopardy because the rules aren't being enforced. An intriguing idea. Just as the Volcker Rule is an opportunity to reduce the risks that big banks pose to taxpayers, it could also begin a discussion about regulatory accountability. That's long overdue.