Executives of the nation's largest banking firms were in a panic after losing hundreds of billions from investment schemes that turned toxic.

Their actions threatened to bring down the nation's economy.

In the fall of 2008, President George W. Bush and Congress agreed to a $700 billion taxpayer bailout, which ignited public outrage among Americans struggling with personal losses from the financial crisis.

That anger was stoked again when people learned that executives of many troubled firms continued to receive multimillion-dollar bonuses.

Now, 18 months after the bailouts began, the U.S. Senate is considering historic measures that involve no longer spending tax dollars to keep the firms in business.

The new rules would embrace the ethic that no company is too big to fail.

"No more bailouts. No more taxpayers exposure," U.S. Sen. Mark Warner said.

Instead, large firms teetering on collapse would be dismantled, with the shareholders and executives losing everything and taxpayers left relatively unscathed.

The no-bailout approach, part of a complex bank regulatory bill sent to the full Senate this week, is the handiwork of Warner, a Virginia Democrat, and Bob Corker, a Tennessee Republican.

The two first-term senators have worked together for more than a year, meeting with business and finance experts to develop new approaches to overseeing large institutions.

Unlike with the health care overhaul, the Senate Banking Committee's work has been largely bipartisan.

Senators of both parties worked in pairs to tackle critical elements, including stronger consumer protection and tougher controls over exotic investment activities.

That arrangement was set aside earlier this month by committee chairman Chris Dodd, D-Conn., who wanted to move more swiftly to get proposals before the full Senate.

He introduced the legislation as a Democratic plan and steered it through the committee Monday in a party-line vote.

"The stakes are far too high and the American people have suffered too greatly for us to fail in this effort," Dodd said after the vote.

"We will not fail."

Republican senators were disappointed with Dodd's actions, but they and their Democratic colleagues said they welcome the floor debate and predict GOP proposals eventually be included.

"I think we have a really great shot at getting a bipartisan bill," Corker said.

Those involved in the legislation have said the partnership of Corker and Warner was critical and demonstrates the effectiveness of bipartisan politics.

Charles Taylor, director of the Pew Charitable Trusts' finance reform project, said the two senators' views carry weight with their colleagues because they have taken the time to develop a deep understanding of financial regulation and the recent crisis.

The legislators didn't start out as friends.

Four years ago, when Corker was embroiled in a bitter Tennessee election fight to win his first term, Warner was helping Corker's opponent, then-U.S. Rep. Harold Ford.

After Warner won his own Senate seat in 2008, he sought out Corker.

"I was impressed with his style," Warner said.

Both are successful businessmen - Warner made his fortune in telecommunications and Corker in construction and real estate development.

"We are part of a relatively exclusive club in the United States Senate, in that we can both read and understand a balance sheet," Warner said with a smile during one of their frequent joint appearances.

Warner and Corker's work involves essentially two changes: more upfront policing of larger institutions to get early warnings of problems and new rules to shut down large failing financial institutions without huge federal bailouts.

They endorsed setting up a Financial Stability Oversight Council to identify and react to activities by financial institutions that could create "systemic risk" and threaten the economy.

The council, led by the Treasury secretary, would recommend more stringent rules if a company's financial enterprises grow too big or complex.

The watchdog agency also would produce public reports detailing any emerging economic risks from particular industries or financial activities.

The new rules would force banking executives to think about their firms' possible demise.

Larger firms would be required to periodically give regulators a "funeral plan" for how they would be dismantled in case of an economic collapse.

Warner said bankruptcy would be the preferred option for companies in trouble.

If an institution's leaders refuse to go that route, the senators propose a more draconian step called "resolution," in which federal regulators take control, quickly shut down the firm and sell off its assets.

"Any rational firm is going to prefer bankruptcy, because resolution will be a death sentence for the company," Warner said.

"Taxpayers will not be left holding the bag. Our liquidation process means that management and shareholders will get wiped out with no chance of re-emerging."

If a federal takeover were necessary, some money would be needed during the shutdown, Warner said, "to keep the lights on and keep the employees paid as you wind down the firm."

The banking bill proposes establishing a $50 billion fund, collected in advance from the companies. Warner stressed that this is not a bailout fund.

"The last time this happened, there was money injected to try to keep them alive. We're not going to keep them alive," he said, noting that any money spent would be paid back with proceeds from selling the failed firm's property and other assets.

Lobbyists for financial institutions balk at the fund, saying it's imposing a burden on firms that might never fail.

Warner agrees that the special fund might not be needed, because the federal government can borrow against the failed firm's assets and be paid back later.

Perhaps the banking community's most strident opposition to the legislation is the establishment of a "consumer financial protection bureau," which Warner supports but was not directly involved in creating.

The bureau would have the authority to examine operations and enforce regulations on many banks and credit unions as well as non-bank financial enterprises such as payday lenders, consumer reporting agencies and bill collectors. Its director would be appointed by the president.

Banking institutions object to "creating a massive new federal agency that would have unprecedented powers over financial transactions," said Rhonda Bentz, spokeswoman for the U.S. Chamber of Commerce.

Warner said the banking industry is pushing hard against some parts of the bill but predicted new consumer protections are inevitable, given the public's anger over banking practices.

"That battle is over," he said, adding that issues being debated are how the new rules will be enforced and where the bureau will be housed in the federal government.

"My hope is at the end of the day there aren't going to be as many exotic consumer products out there that sound better than they are," Warner said.

"For the average consumer, my hope is you're not going to be able to go buy a house with no money down. You're not going to see some infomercial that's going to promise you how you become a real estate mogul with no experience if you buy my product."

As Warner has repeatedly told his staff, he wants to "make banking boring again."