Paul Volcker explains in an op-ed for the New York Times what else he had in mind:

What we do need is protection against the outliers. There are a limited number of investment banks (or perhaps insurance companies or other firms) the failure of which would be so disturbing as to raise concern about a broader market disruption. In such cases, authority by a relevant supervisory agency to limit their capital and leverage would be important, as the president has proposed.
To meet the possibility that failure of such institutions may nonetheless threaten the system, the reform proposals of the Obama administration and other governments point to the need for a new “resolution authority.” Specifically, the appropriately designated agency should be authorized to intervene in the event that a systemically critical capital market institution is on the brink of failure. The agency would assume control for the sole purpose of arranging an orderly liquidation or merger. Limited funds would be made available to maintain continuity of operations while preparing for the demise of the organization.
To help facilitate that process, the concept of a “living will” has been set forth by a number of governments. Stockholders and management would not be protected. Creditors would be at risk, and would suffer to the extent that the ultimate liquidation value of the firm would fall short of its debts.
To put it simply, in no sense would these capital market institutions be deemed “too big to fail.” What they would be free to do is to innovate, to trade, to speculate, to manage private pools of capital — and as ordinary businesses in a capitalist economy, to fail.

The strongest argument against this proposal is that the government would break the rules; that regulators would save the firm from liquidation or merger; that they would indefinitely put the firm on life support and slowly twist it to serve political ends, as they are doing now with regard to Fannie and Freddie.

But the bailouts set the unfortunate precedent that the government can do pretty much whatever it wants when faced with a financial catastrophe, and there isn’t much we can do about it. Binding it more tightly is a worthy long-term project. But in the immediate term, what Volcker proposes makes sense. No more bailouts. Give policymakers a credible alternative — by credible I mean nobody believes the government will let these monsters declare bankruptcy post-Lehman Brothers — which actually lets failed firms fail, no matter how big and interconnected there are.