WASHINGTON — Democrats clashed over banking reform Tuesday night during the party's first primary debate, underscoring the sharp divide with GOP candidates on Wall Street issues.

While Republicans have so far focused on repealing or drastically revising the Dodd-Frank Act — to the extent the issue has been raised at all — Democrats are concentrating their efforts on where financial reform needs to be pushed further.

The three leading candidates, former Secretary of State Hillary Clinton, Sen. Bernie Sanders of Vermont and former Maryland Gov. Martin O'Malley, all called for additional changes to the banking system to rein in large financial institutions during the Las Vegas showdown.

"This is a significant shift in American politics and we should expect that the presidential election — whatever the outcome — will have a real impact on regulatory attitudes and actions," said Simon Johnson, a professor at MIT.

Following are the key takeaways from the debate that banks should focus on as the election draws closer.

'Too Big to Fail' is here to stay
While the Obama administration has largely concluded that Dodd-Frank ended "too big to fail," comments from all three of the top Democratic contenders reflect broader party concerns that the biggest banks still pose significant risks to the system.

"The Democratic candidates essentially agree that TBTF is still with us," said Johnson. "This surely means that any Democratic nominee for president will end up pushing for a further financial reform agenda."

Indeed, both Sanders and O'Malley have explicitly called for breaking up the biggest banks, and even Clinton, the most moderate of the first-tier candidates, has warned that excessive risk in the system and "too big to fail" remain problematic.

"Of course we have to deal with the problem that the banks are still 'too big to fail,'" Clinton said at the debate, highlighting her plan to punish bank executives found guilty of wrongdoing and to give regulators more power over the largest financial institutions, including nonbanks.

Though Clinton continues to win financial backing from the industry, her rhetoric underscores the fact that there's little limit to how far Democratic candidates can go in bashing banks, seven years after the financial crisis.

"Your toughness on the banks is now a litmus test in the Democratic Party," said Edward Mills, an analyst at FBR Capital Markets. "What we've found through Dodd-Frank and what we continue to see with the power that Sen. Warren yields in the Senate is that there's almost no position against the banks that is going to be seen as too far among Democratic leaders."

Clinton focuses on 'shadow banking'
Still, Clinton was careful to center her comments on fears about the so-called shadow banking system, sidestepping the concerns about big banks detailed by the other candidates. She also continued to push back on calls to bring back the Glass-Steagall Act, a Depression-era law separating commercial banking and riskier activity. The law was repealed in 1999 under her husband, President Bill Clinton.

"Clinton is sticking to her guns and refusing to endorse a return of Glass-Steagall," Jaret Seiberg, an analyst with Guggenheim Securities, wrote in a note to clients on Wednesday. "She couches this defense by arguing that the problems are bigger than just the banks and any new approach needs to be focused on risk rather than on size."

Going forward, shadow banking is likely to be an ongoing issue of concern. More activity is being pushed into the nonbank industry as depositories shed certain business lines to meet new capital standards — and there's more work to be done for regulators in that space.

"If you were doing a scorecard of Dodd-Frank in terms of where there's work left to be done, it's on the nonbank or shadow-bank side of the ledger," said Mills, adding that Clinton's rhetoric could heighten focus on the Financial Stability Oversight Council, which wields considerable power under Dodd-Frank.

Sanders and O'Malley will continue to put pressure on Clinton
For those excited to see banking reform on the agenda after two GOP primary debates where the issue got little play, there's likely more to come. Sanders and O'Malley both pushed Clinton hard on the issues and raised concerns about Wall Street at every opportunity — and they're expected to keep pounding the table.

"Congress does not regulate Wall Street. Wall Street regulates Congress," Sanders said, adding that Clinton's efforts to police the banks by having them "please do the right thing… is kind of naïve."

O'Malley, meanwhile, questioned Clinton outright about her lack of support for bringing back Glass-Steagall, which has been supported by Sen. Elizabeth Warren, D-Mass., and many progressives.

"You are not for putting a firewall between this speculative, risky shadow banking behavior," said the former governor. "I am, and the people of our country need a president who's on their side, willing to protect the Main Street economy from recklessness on Wall Street."

With Clinton still the frontrunner in the party, both Sanders and O'Malley are pushing hard to win their share of the progressive vote, those who might be more skeptical of Clinton's efforts.

"It's a proxy fight to see who's going to take over the Warren Democrats," said Mills.

Housing reform remains conspicuously absent
Still, while banking finally got some air time, housing finance reform remains largely off the radar this election season.

"You don't want to defend Fannie Mae and Freddie Mac, nor do you want to support anything that could cut off credit to the marginal borrower," said Mills.

Fannie Mae and Freddie Mac have now been in conservatorship for more than seven years, and there's little to no momentum in Congress for a legislative overhaul of the system before the elections. Despite the fact that the next president will more than likely inherit the issue, there's been little discussion on either side of the aisle.

Seiberg said that the lack of discussion around mortgage finance reform "supports our view that" the Federal Housing Finance Agency "ultimately will be the entity that revamps Fannie and Freddie."

"It also suggests that Democrats will not be clamoring for President Obama to free the enterprises from conservatorship before he leaves office, as some have speculated," he said.

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