President Barack Obama follows House Financial Service Committee Chairman Rep. Barney Frank, D-Mass., after the president spoke about financial reform Thursday at the White House in Washington.

Washington ? Embracing Depression-era policy and populist politics, a combative President Barack Obama chastised big Wall Street banks Thursday and urgently called for limits on their size and investments to stave off a new economic meltdown.

Investors responded by dumping bank stock.

Obama’s rhetoric covered the whole financial industry, but the key changes will affect only a few high-profile players, including JPMorgan Chase & Co., while sparing investment banks like Goldman Sachs Group Inc. The move could undercut Treasury Secretary Timothy Geithner’s strategy of maintaining close ties with the financial industry as part of the administration’s overhaul efforts.

“We have to get this done,” Obama said. “If these folks want a fight, it’s a fight I’m ready to have.”

“We’ve come through a terrible crisis,” the president said, pivoting the White House focus from health care to an economy that has been slow to recover. “The American people have paid a very high price. … That’s why we’re going to rein in the excess and abuse that nearly brought down our financial system.”

Markets tumbled on the news, the Dow Jones industrial average losing 213 points and continuing this week’s slide that has erased the Dow’s gains for 2010.

Obama’s announcement included changes that have been advocated for over a year by former Federal Reserve Chairman Paul Volcker — who appeared with the president at the White House — particularly by endorsing Volcker’s proposal to ban banks that take deposits from also trading stocks for their own profit. The change would separate commercial banks from investment banks, a line that was blurred a decade ago by the repeal of the Depression-era Glass-Steagall Act.

That won’t help, suggested Rob Nichols, president of the Financial Services Forum, an industry group representing 18 of the largest financial companies.

“Proposals to preemptively break up large, well-managed and well-capitalized banking companies — or to reimpose Glass-Steagall restrictions — are based on a misdiagnosis of the causes of the financial crisis,” he said.

Neither the president’s proposal, which would need congressional approval to take effect, nor his aggressive tone is likely to help the administration’s case in working with Wall Street and finding support from banks that will need to boost lending to support an economic recovery.

Geithner has worked closely with bankers since coming into office, especially when designing proposals to overhaul financial regulation. Many banks have responded by supporting administration plans publicly and offering their assistance behind the scenes.

Thursday changed that. Bank representatives usually give input on such issues and are briefed on decisions. But that apparently wasn’t the case this week, though officials said the administration still values bankers’ opinions.

The administration also would change an existing cap that limits a bank from holding more than 10 percent of the deposits insured by the Federal Deposit Insurance Corp. It was unclear how many banks that change would affect.