WASHINGTON — Rhode Island Senators Jack Reed and Sheldon Whitehouse joined a 74-to-25 Senate majority yesterday to pass the latest version of the rescue package for the financial system, both calling it essential to the health of the nation’s economy.

Reed and Whitehouse also called the bill an improvement over the version that the House unexpectedly killed on Monday, sending legislators and Bush administration representatives into another urgent round of negotiations.

The bill, which now goes to the House for a possible vote this week, can help fend off “a tremendous crisis in the markets that will affect many Americans and could be reflected in their ability to buy cars or send their children to college or even pay off their credit cards,” according to Reed.

Reed said he has discussed the dangers of inaction with financial experts who say “this could get very, very bad.”

Already, Reed said, the slowing of credit through the financial system shows mounting effects on ordinary Americans, even in the past few days. For example, he said, “There’s been a significant decline in auto sales reflected not just in Detroit but on every car lot in America.”

If the rescue bill becomes law, it “will provide a kind of floor or foundation” upon which to rebuild the free-flowing credit market upon which the U.S. economy depends, said Reed, a Banking Committee member who has been active in the talks that produced the rescue bill.

“I think it’s a prudent step that we have to take in this crisis,” Whitehouse said of the package. “I think the negotiators have created significant improvements in the program.”

Whitehouse also expressed confidence that a $100-billion package of popular tax-breaks for business and for middle-class families — though not strictly related to the crisis the bill addresses — would help to generate political support.

Among other changes, the rescue bill now includes a provision to raise the ceiling on federal insurance of bank deposits, from $100,000 to $250,000 per deposit. Reed, who conferred on that provision with Sheila Baird, chairwoman of the Federal Deposit Insurance Corp., said that that change will be an important confidence booster for the officers and customers of small community banks — and a strong political nudge toward passage of the overall rescue bill.

Such banks have branches in “every congressional district in the country,” Reed said. He added that small-bank officials have voiced rising concern in recent days about a possible “runoff of depositors” to bigger banks. “There’s no rational reason for it,” he explained, since the overwhelming majority of depositors are protected by the current insurance limit. But in the current crisis atmosphere, “they fear even the remotest possibility” of weakness in the local bank. The higher deposit insurance limit should help allay such fears across the industry, Reed said.

But Reed stressed that “the broad outline” of the earlier bill remained the basis of the rescue plan passed last night. He said that was a sound basis for the compromise produced since Monday and “a vast improvement over the simple demand for $700 billion that the administration made” in its initial proposal about 10 days ago.

Like many supporters of the package, Reed and Whitehouse cited in particular the provisions that created an independent apparatus to supervise the Treasury’s administration of the plan; curbs on the pay permitted for executives of companies participating in the rescue program; a system that taps the potential rescue only gradually and aims for its replenishment by the rescued companies; and corporate stock “warrants” — which Reed helped to create — to give the taxpayers an ownership stake in participating companies.

jmulligan@belo-dc.com