The White House said yes we can on financial regulatory reform on Tuesday, while the top Republican in the U.S. Senate said no we won't.

A bare-knuckles fight is coming in days ahead as the Obama administration and congressional Democrats push for a crackdown on banks and capital markets against Republican opposition. With lawmakers recently returned from a two-week recess, a final vote on Senate legislation is near.

The shape and profitability of the financial services industry for years to come hangs in the balance, as well as the U.S. economy's ability to withstand future financial crises.

A White House official said momentum for regulatory reform seemed to be building. We hope Republicans in Congress will join us in a constructive conversation about how to move a strong bill forward, White House spokeswoman Amy Brundage said in a statement.

But that upbeat assessment clashed with a defiant message delivered by Senator Mitch McConnell, the chamber's top Republican.

We must not pass the financial reform bill that's about to hit the floor. The fact is, this bill wouldn't solve the problems that led to the financial crisis. It would make them worse, said McConnell on the Senate floor.

The American people have been telling us for nearly two years that any solution must do one thing -- it must put an end to taxpayer-funded bailouts for Wall Street banks.

This bill not only allows for taxpayer-funded bailouts of Wall Street banks; it institutionalizes them, he said.

Though Republicans oppose a number of provisions in the Democrats' proposed reforms, opposition is turning to measures designed to address the problem of firms seen as too-big-to-fail because of the risks they pose to the financial system.

Republicans, in particular, oppose a measure that would allow regulators to borrow money from the Treasury -- that means taxpayers -- to help finance the seizure and dismantling of large, troubled firms.

President Barack Obama is scheduled to meet on Wednesday with congressional leaders from both parties, including McConnell and Senate Democratic Leader Harry Reid, to discuss the Democratic bill expected any day in the full Senate.

I do not think there is a tenable position that anyone could take ... that says we don't need to fix the system, to reform the system, U.S. Treasury Secretary Timothy Geither said on Tuesday in a panel discussion.

Look at the devastation caused by the financial crisis. Look at the damage it did to the lives of millions of Americans ... what it did to American businesses, he said.

REGULATION LITTLE CHANGED

Yet, government oversight of banks and markets has changed little more than two years since the near collapse of former Wall Street giant Bear Stearns ushered in the worst financial crisis in decades that tipped the economy into a deep recession.

The House of Representatives approved a sweeping reform bill in December. It embraced most of the many proposals Obama issued in mid-2009. But the slow-moving Senate has yet to act on a 1,336-page bill offered by Senator Christopher Dodd.

The Senate banking committee that Dodd chairs approved his bill last month, but did so without any Republican support. Dodd will need some Republican backing to get his measure through the full Senate. A final vote is likely this month or next.

It's going to be a fight, Senator Richard Durbin, the No. 2 Democrat in the chamber, said in floor remarks.

He said the financial firms that are working to block reforms are the same ones that piled up excessive risks and leverage in their excitement and greed during the real estate bubble that broke in 2007-2008, precipitating the crisis.

The debate in the Senate heated up as investigations revealed damaging details about the practices of financial firms leading up to the financial crisis.

Democrats are betting that, as investigations continue, bankers' already deep political unpopularity will worsen, making Republicans increasingly reluctant to stand too close to them in the reform fight ahead of November's elections.

SENATOR LEVIN BLASTS WAMU

Democratic Senator Carl Levin, chairman of an investigative subcommittee, on Tuesday accused former managers of Washington Mutual -- which was the largest U.S. savings and loan when it was seized by regulators in September 2008 -- of creating a mortgage time bomb in their quest for profits.

He said WaMu made hundreds of billions of dollars in shoddy loans. Many of them lacked documentation or were based on fraudulent paperwork and were packaged and sold to investors as mortgage-backed securities, Levin said at a hearing.

WaMu's former chief executive, Kerry Killinger, replied that regulators unfairly seized the thrift just as it was working its way through the crisis. JPMorgan Chase & Co bought WaMu's banking operations from regulators for $1.9 billion.

(Additional reporting by Caren Bohan, Alister Bull, Glenn Somerville, Emily Kaiser, Rachelle Younglai, Dan Margolies,

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