Nearly two years after a financial crisis triggered the worst recession since the Great Depression, the Senate on Thursday approved bold and controversial legislation aimed at preventing a repeat — and set the stage for a showdown over the issue in this fall's midterm elections.

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WASHINGTON — Nearly two years after a financial crisis triggered the worst recession since the Great Depression, the Senate on Thursday approved bold and controversial legislation aimed at preventing a repeat — and set the stage for a showdown over the issue in this fall’s midterm elections.

For President Obama and Democratic leaders, the 60-39 vote marked their second landmark overhaul; the first addressed the country’s health-care crisis.

Obama is expected to sign the financial-overhaul bill Wednesday, touting it as evidence that Democrats are standing up for Main Street against the powerful financial industry and its Republican allies.

Supporters said the bill gives the government desperately needed tools to avoid future corporate bailouts and prevent financial companies from gouging consumers on mortgages and other financial products.

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“Because of this reform,” Obama said, “the American people will never again be asked to foot the bill for Wall Street’s mistakes. There will be no more taxpayer-funded bailouts, period.”

But the sweeping, 2,300-page legislation carries risks for Democrats. Just as with the health-care law, Republicans have portrayed the financial overhaul as an intrusion of big government into the lives of average Americans.

Rather than ending bailouts, GOP opponents charge the government’s new power to dismantle large financial companies on the brink of collapse would lead to more bailouts at taxpayer expense.

Even before the bill passed, House Minority Leader John Boehner, R-Ohio, called for its repeal. He has compared the legislation to “killing an ant with a nuclear weapon.”

“I think it’s going to make credit harder for the American people to get, clearly harder for businesses to get,” Boehner said.

He also warned that the bill “institutionalizes” the notion that some financial institutions are too big to fail “and gives far too much authority to federal bureaucrats to bail out virtually any company in America they decide ought to be bailed out.”

Republicans also criticized the legislation for not addressing the future of mortgage-finance giants Fannie Mae and Freddie Mac, seized by the government in 2008.

Supporters had hoped for strong bipartisan support, but Wall Street and much of the financial industry lobbied heavily against the bill. As they did in the House last month, nearly all Republicans opposed the bill.

Only three Republicans — Scott Brown, of Massachusetts, and Susan Collins and Olympia Snowe, both of Maine, — voted for it. They also provided the pivotal support needed for the 60 votes that overcame a Republican-led filibuster.

Democratic Sens. Patty Murray and Maria Cantwell of Washington state voted for the legislation. Cantwell had withheld support until two weeks ago, when the House and Senate agreed on tougher oversight of derivatives. More so than most of her colleagues, Cantwell has blamed unregulated derivatives trading for exacerbating the financial meltdown.

On the Senate floor Thursday, Cantwell lauded the fact that most derivatives would be traded openly on exchanges, and through a clearinghouse to ensure that transactions are backed by real money.

“Thank God we’re going to be regulating it for the first time,” she said.

One Democrat, Wisconsin Sen. Russ Feingold, voted against the legislation, saying it wasn’t tough enough.

Still, the legislation will reverse three decades of deregulation throughout the financial system, a government withdrawal that many experts believe set the stage for the financial crisis in 2008.

To prevent a repeat, the bill enacts the most sweeping clampdown on the industry since the creation of the Securities and Exchange Commission and the Federal Deposit Insurance Corp. (FDIC) in the 1930s.

The bill creates a bureau within the Federal Reserve to protect consumers in the financial marketplace, establishes a council of regulators to monitor the financial system for major risks, imposes tough regulations on derivatives, grants shareholders a nonbinding vote on executive compensation and gives the government authority to seize and dismantle firms whose failure would pose a danger to the economy.

The legislation also shuts down the federal Office of Thrift Supervision (OTS), which oversees savings and loans. That agency failed to prevent the risky mortgage lending that led to some of the biggest collapses of the crisis, including Washington Mutual, the largest thrift failure in U.S. history. OTS duties merge into the Office of the Comptroller of the Currency, which oversees national banks.

Among other changes, the FDIC’s $250,000 coverage for individual bank accounts will become permanent.

Once the bill is signed into law, agencies will begin the monumental task of writing thousands of specific new regulations and conducting dozens of studies.

To help pay for the $19 billion cost of the legislation’s expanded regulation over 10 years, the bill immediately ends additional expenditures from the controversial $700 billion Troubled Asset Relief Program bailout fund. TARP was to expire in October.

Senate Banking Committee Chairman Chris Dodd, D-Conn., said the legislation can’t fix the fallout from the last crisis but aims to give regulators the ability to prevent another one.

“I regret I cannot give you your job back, put retirement money back in your account,” he said. “What I can do is see to it that we never, ever again have to go through what this nation has been through.”

Kyung M. Song

of The Seattle Times

Washington bureau contributed to this report.

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