President Barack Obama, reeling from an election defeat in the Senate, will propose stricter limits on financial risk-taking on Thursday in a move that may recall Depression-era curbs on banks.

The president will announce a series of measures to cut down on excessive risk-taking as part of a revamp of the country's financial regulatory system, a senior Obama official said on Wednesday.

The move could also help the White House tap into public rage over Wall Street excess after Obama's Democratic Party was rebuffed by voters in Massachusetts, who elected Republican Scott Brown to the U.S. senate.

The proposal will include size and complexity limits specifically on proprietary trading and the White House will work closely with the House and Senate to work this into legislation, the official said.

Proprietary trading refers to a firm making bets on financial markets with its own money, rather than executing a trade for a client.

The White House has blamed the practice for reckless gambling on the U.S. property market which resulted in massive losses that almost destroyed the financial system in 2008.

This forced taxpayers to provide a $700 billion bank bailout to prevent the most severe U.S. recession since the 1930s from getting even worse.

REINSTATING 1930S LIMITS

The Obama official did not provide details of the plan, which would require congressional approval. But U.S. lawmakers are already reviewing measures that, in some cases, recall the scope of financial reform enacted after the Great Depression.

Democratic Senator Jeff Merkley told Reuters earlier this week that there should be a firewall to separate risky trading activities and normal bank-lending.

A more aggressive proposal was put forth last month by former Republican presidential nominee John McCain and Democratic Senator Maria Cantwell. Their measure would reinstate the 1930s-era Glass-Steagall limits on banking by barring large banks from affiliating with securities firms and being in the insurance business.

Passage of the Cantwell-McCain bill would force firms at the center of last year's financial crisis -- such as Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase and Wells Fargo -- to rethink their banking, investment and insurance operations.

Obama will speak at 11:40 a.m. EST following a meeting with Paul Volcker, the former Federal Reserve chairman who heads his economic recovery advisory board and who favors curbing big financial firms to limit their ability to do harm.

Obama separately told ABC News in an interview that the surprise defeat of his Democratic Party candidate in Massachusetts on Tuesday reflected anger over bankers' bailouts and double-digit unemployment.

Obama has already unveiled a plan to tax banks up to $117 billion over the next 10 years to recoup money taxpayers lost in the bank bailout conceived by his predecessor, former President George W. Bush, to stem the financial crisis.

Obama is picking on a popular enemy. Ordinary Americans, facing 10 percent unemployment as the economy recovers from the recession inflicted by the financial market collapse, have been enraged by reports of multimillion-dollar banker bonuses.

Goldman Sachs is expected to report strong earnings on Thursday. Critics argue that such large profits -- and similarly large bonus payouts -- are only possible because of public support of financial institutions.

(Editing by Mohammad Zargham)

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