President Obama sent a strong message to Wall Street this week when he proposed imposing new limits on the size and activities of the country’s largest banks. In an effort to prevent another financial Armageddon, Obama wants to prevent commercial banks (those that lend and maintain deposits) from also owning hedge funds or private equity units, and from engaging in proprietary trading (trading for their own accounts using their firm’s own money).

The proposal could have major implications for the businesses of JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and Bank of America (NYSE:BAC), which together control almost 40% of the nation’s deposits. Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) could also be forced to rethink the direction of their businesses should these proposals be implemented.

To gain some insight on President Obama’s proposals from inside Congress, I spoke with Rep. Paul Kanjorski (D-Penn.), chairman of the House Financial Services Subcommittee on Capital Markets, who authored similar legislation that already passed the House last year. His amendment gives the government authority to preemptively break up large financial corporations (in a healthy state) should they pose a systemic risk.

Here is an edited transcript of our conversation:

Jennifer Schonberger: What are your thoughts on the president’s proposal, especially in light of the amendment you proposed last year, which has already passed the House?

Rep. Paul Kanjorski: … They took the amendment I proposed, which is in the legislation that passed the House. The only difference is there are two areas that look like they may be additions to my amendment. But when I look at them, we conceptually feel like they were covered within my amendment. If there is some disagreement [about] that, we could enlarge the amendment and change the words sufficiently to include it … The White House now is taking a strong position to support my amendment and how they interpret it, and we agree that that’s the position …

… I’ve never believed that banks should be allowed to proprietarily trade by drawing money out of a window and being in competition with their own customers. I just think there was something radical about that and wrong. So I’m very much in favor.

… This is moving the protective device a little more to the right. If bankruptcy is on the far left and resolution authority is in the middle, we’re moving a little more to the right to say, "We want to take preemptive strikes before you cause systemic risk."

Schonberger: Have you personally received any greater details from the president since his announcement?

Kanjorski: No. We haven’t really communicated today at all. I’ve just listened to his statement. I am probably reading into what he said and hearing what I want to hear. But I think that pretty much everything he talked about, we’ve covered and can certainly cover. We’re pretty much 100% in agreement as to what should be done.

Schonberger: You told me in November that you didn’t think Glass-Steagall would work because times had changed. Yet the president’s proposal channels some of that. Do the president’s proposed limits fit the times?

Kanjorski: Yes, I think that’s what he said, and I agree with him. I don’t think we can go back 10 years. The genie is out of the bottle. We have a global economy that’s huge. What everyone is looking at now is, what can we do to put ourselves at less risk? Rather than trying to turn back the clock and reconstruct the whole system, which would be quite expensive, time-consuming, and risky, I think they discovered my amendment and said, "This goes a long way in allowing us to do what Glass-Steagall would have done otherwise, had it not been taken out of place."

Schonberger: The president endorsed placing restrictions on proprietary trading (barring commercial banks from participating in proprietary trading). Has anyone looked into how these proposed limits would impact banks’ ability to lend, or liquidity, for that matter?

Kanjorski: I think you have to say that not any one single thing necessarily causes systemic risk. As I view it, systemic risk is as much a psychological risk as anything else. If you look over the last 10 years -- how we got to this crisis situation -- every year it seemed we started to lay down our protective devices, [and yet we did] not carry them out because we [thought] we were never going to have a crisis again.

A perfect example of that was in the mid-’90s, when they passed a law denying the right to regulate hedge funds. That’s incredible. But it was done. Now, did hedge funds cause this whole problem? No. But do banks have hedge funds? Yes. Are there sometimes conflicts … in those situations between the shareholders’ interests and the customers’ interests? I would think so. Do we really want to encourage these types of conflicts to occur? I don’t think it’s healthy.

If you want be a trader, be a trader. If you want to be a bank, be a bank. That’s not going back to passing Glass-Steagall. … We’re not going to bar everyone from that if they’re not going to be a systemic risk. [However,] we may bar everybody depending on what they want to do -- for competition purposes, to make it fair. But it seems to me that that’s a fair thing to do if we don’t want to have these unusually huge organizations.

Schonberger: So, then, you don’t think that these restrictions would imperil lending?

Kanjorski: No. I think quite the contrary. I think what will happen is that institutions will undertake charters and activities that feed their discipline.

Schonberger: Being the chairman of the subcommittee on capital markets in the House, what are you hearing from your colleagues on the president’s proposal? What do you think the prospects are for passage of a strong, un-watered-down version of legislation, which includes the president’s proposals?

Kanjorski: The president’s proposal is almost identical to mine. There is very little difference. Now, I think his proposal was made today because I suspect he had already discussed it with Sen. Dodd in their briefings. We’ve been sending our material to the Senate Banking Committee. I suspect they will have something similar in their bill, and that will work in conference. Now, the difference is, the president has said, "If that is in the final bill, I’ll pass it." So it makes it much more likely. We’re past the 50-yard line, down toward the 20-yard line -- we’re in the red zone.

Schonberger: What do you think about the tax the administration has proposed on the country’s largest banks over the next 10 years? Do you think that’s fair?

Kanjorski: Not only do I think it’s fair, I think it’s proper and right. The American taxpayer is under tremendous risk to save these banks. It’s estimated to be about $117 billion. We paid a political price when we voted for the program to save the banks. We did that to save Main Street. But they never came back and explained to the people what we had done.

In our original legislation, we required the president to put forth a plan that within five years would recover losses. He’s just moved that up now, and rightfully in my estimation, because no one anticipated the profits that would be derived in such an early period of time by these banking institutions and the compensation that they’d be paying out in bonuses.

Now, to hear any resentment from these banks saying, "If we’re required to pay back $8 billion a year over the next 10 or 11 years, that will break us" -- when in fact [they’re] giving out $145 billion this year in bonuses -- I think they ought to be ashamed.

Schonberger: Do you think we ought to tax bonuses?

Kanjorski: If they persist in not understanding the actual and justifiable rage of the American people … these bankers are making millions an hour and they show no compassion for people losing their homes ... Don’t get me wrong. I want them to make money, but they could have taken half of their bonus money and given it back to the people who lost their jobs, or put a program together to help save their homes for a year or two. They didn’t do that. If they don’t get the message now, then we’re going to have to take action to smack them …

Schonberger: What are you hearing on the health-care bill? Speaker Pelosi said that she thinks it’s doubtful the Senate version of the bill has enough support to pass the House. Is the bill dying?

Kanjorski: I don’t think it’s dying. I don’t think it can do what they talked about. That was manipulation beyond acceptance. I wouldn’t have voted for it, and I voted for the original bill. I’m hearing talk now that’s probably right.

We should learn a couple of things out of the Massachusetts experience and the polls relating to the health-care bill. This idea that if you’re in the majority, you’re going to prevail -- I think the message from the American people is they don’t want their Congress and their government to operate in that way. I hope that we’ve learned that message.

We should take the time now to stop, break this bill apart, find those areas where there’s strong bipartisan agreement, [re]structure the bill and start passing it. [If we can] do that in 80% of the agreement, then look at and re-debate the other 20% of the agreement, that’s the only right thing to do.

To read Rep. Paul Kanjorski’s amendment regarding entities that are “too big to fail,” click here; for his comments on corporate governance, click here.

Fool contributor Jennifer Schonberger owns shares of Bank of America, but does not own shares of any of the other companies mentioned in this article. The Fool has a disclosure policy.