There's been a silent exodus of prop traders from US banks to foreign banks, a voting-by-foot of sort against the pending Volcker Rule. But I don't believe the shelter will last long.
If and when US adopts the Volcker Rule, of course it'd apply to all banks operating in the US. I'll leave the details to legions of policy experts, but suffice it here to say that anything less than the universal application would be unfathomable. Furthermore, I believe it makes sense, both in terms of learning from the crisis and long-term self-interest, for all major countries to follow suit. If they don't, then the US government should try to persuade them. I don't see how any government could, or even would want to, mount a credible defense against such efforts.
Prop trading is by nature predatory. It has its societal function and value. Prop trading is for lions and functions in the markets as lions do in the ecosystem. But mixing prop trading with commercial banking in the post-Glass-Steagall era has created an ecosystem of hyenas, a system that scavenges on conflict of interests and unfair access (to both information and financing) and in the process creates systemic risk. Matt Tabbi's (in)famous "vampire squid" may not be a fair label for Goldman per se. But it's certainly fitting for prop trading mixed with commercial banking -- it sucks cheap financing and all unfair advantage from every corner of the company and offloads its risk everywhere, and through the company's other services to the rest of the society.
The future of prop trading is in private partnerships, as in old Wall Street and as it should be.
Disclosure: Author holds a short position in FAS