WASHINGTON DC – The US Senate on Thursday approved the most extensive overhaul of financial-sector regulation since the 1930s, hoping to avoid a repeat of the financial crisis that hit the U.S. economy starting in 2007.

The Senate approved the most extensive overhaul of financial-sector regulation since the 1930s, hoping to avoid a repeat of the crisis that hit the U.S. economy starting in 2007, The Wall Street Journal reported.

The legislation passed the Senate 59 to 39 and must now be reconciled with a similar bill passed by the House of Representatives in December, before it can be sent to President Barack Obama to be signed into law.

The controversial measure, supported by the Obama administration, sets up new regulatory bodies and restricts the actions of banks and other financial firms. It is designed to try to make order of the cascading regulatory chaos that ensued in 2008 when mammoth banks and some unregulated financial firms collapsed, and public funds were used to save them. Among other things, the legislation would:

Establish a new council of “systemic risk” regulators to monitor growing risks in the financial system, with the goal of preventing companies from becoming too big to fail and stopping asset bubbles from forming, such as the one that led to the housing crisis.

Create a new consumer protection division within the Federal Reserve charged with writing and enforcing new rules that target abusive practices in businesses such as mortgage lending and credit-card issuance.

Sen. Christopher Dodd, left, smiles while flanked by Senate Majority Leader Harry Reid (second from the right), Sen. Richard Durbin (right), Sen. Blanche Lincoln (second from the left) and Sen. Mark Warner after the Senate voted to pass Wall Street reform on Thursday.

Empower the Federal Reserve to supervise the largest, most complex financial companies to ensure that the government understands the risks and complexities of firms that could pose a risk to the broader economy.

Allow the government in extreme cases to seize and liquidate a failing financial company in a way that protects taxpayers from future bailouts.

Give regulators new powers to oversee the giant derivatives market, increasing transparency by forcing most contracts to be traded through third-parties instead of only between banks and their customers. Derivatives, which are complex financial instruments, are often used to hedge risk. Speculative trading in the contracts led to losses at many banks in the 2008 crisis.

“Simply, the American people are saying, ‘you’ve got to protect us,’ and we didn’t back down from that,” said Senate Majority Leader Harry Reid (D., Nev.). “When this bill becomes law, the joyride on Wall Street will come to a screeching halt.”

Opponents of the bill worry that the government is overreacting, and over-regulating the financial industry. They worry the measures will crimp the free flow of capital in the U.S. economy.

“It will inevitably contract credit,” said Sen. Judd Gregg (R., N.H.), who says the Senate bill “is probably undermining the system?probably making for a weaker system.”

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