WASHINGTON — The ball is now firmly in Democrats' court, following the release of the Senate Banking Committee Chairman Richard Shelby's sweeping regulatory reform bill.

The Alabama Republican unveiled his discussion draft Tuesday, which is focused on regulatory relief for community and regional banks, along with changes to the Federal Reserve, the Financial Stability Oversight Council and the mortgage finance industry.

But the biggest test for lawmakers on both sides of the aisle will come May 21, when the bill is scheduled for a committee vote.

Below are three ways the markup could shake out, and a look at what each means to the overall prospects for a bill:

Option 1: Shelby and Brown strike a deal.

Perhaps the best-case scenario for the banking industry would be for Shelby and Sen. Sherrod Brown, D-Ohio, ranking member on the panel, to put aside their differences and come to the table on a compromise bill that could sail through the House and be signed by President Obama.

Republican committee aides have emphasized that the legislation is intended as a starting point for subsequent discussion and that they drafted the current proposal with an eye toward bringing on Democratic support. The American Bankers Association and the Independent Community Bankers of America offered support for the bill on Tuesday, reiterating that smaller institutions are anxious for regulatory relief.

But the prospects for a "kumbaya" moment have become increasingly unlikely in recent weeks as representatives from both camps aired grievances about the other's approach to negotiations, which appear not to have gotten off the ground. Democratic aides on the panel told reporters Tuesday that Brown is open to community bank regulatory relief, but the breadth of the current legislation continues to be a non-starter.

"Rather than focusing on issues that enjoy broad bipartisan support, this draft bill is a sprawling industry wish list of Dodd-Frank rollbacks," Brown said in a statement Tuesday, after the package was formally unveiled.

Of course, all tough negotiations require some hardball, and Brown has not said that he's walking away from the discussions entirely.

"When I was up there, we never reached a deal with Dodd and Sarbanes until everybody was yelling and screaming," said Mark Calabria, director of financial regulation studies at the Cato Institute, and a former Shelby staffer.

He added that the process often involves both sides pushing for their own positions as hard as they can — up until the breaking point.

"If they thought they could squeeze an inch out of us, they'd do it. Until they asked for too much, they'd keep asking," Calabria said.

But it's worth noting at this point that there's little indication from either side that a breakthrough is at hand or that substantive discussions are in play, making the chances for a bipartisan package supported by top party leaders very slim.

Option 2: Shelby wins over a few moderate Democrats.

Even without the support of their ranking member, it's possible some moderate Democrats on the panel could opt to work out a deal with Shelby to bolster their contacts with industry and secure a key win for community banks.

Observers are keeping a careful eye on Sens. Mark Warner of Virginia, Jon Tester of Montana, Heidi Heitkamp of North Dakota and Joe Donnelly of Indiana.

"To me, it's a question of whether it's 12-10 or 15-7. After seeing this release, the high water mark for a committee vote will be 16," said Isaac Boltansky, an analyst at Compass Point Research & Trading. "The headlines will be about Shelby and Brown, but in reality the fate of the bill in the Senate is going to fall in the hands of moderate Democrats."

Bringing on even a few moderates could prove crucial for Shelby to move his bill through the Senate via regular order. It closes the gap needed for a filibuster-proof vote and could provide cover for more Democrats to join the effort on the chamber floor.

"One thing I'll be interested to see is, who is willing to engage in a dialogue versus who shuts the door?" said David Stevens, president and chief executive of the Mortgage Bankers Association, noting that he's supportive of several housing provisions in the bill and would like to see a bipartisan dialogue emerge.

He added: "There are some areas we clearly support, but there's a lot in the bill, and we recognize there are other areas unrelated to those we focus on that would likely cause concern for others. But it'd be a shame to throw out the baby with the bathwater."

Still, early responses from committee Democrats suggest that even the more centrist members of the panel aren't unconditionally ready to sit down at the table with Shelby.

Heitkamp, for example, said in a statement Tuesday afternoon that the bill "was drafted without any input" from Democrats and noted that she's "still reviewing" the legislation.

"I hope we can actually work together to negotiate strong, bipartisan policies that best support community banks and credit unions," she said. 

A spokeswoman for Warner said that that the legislation appeared "at first glance to be a significant overreach."

"Senator Warner thinks that is a shame, because there are a number of commonsense, bipartisan fixes that Democrats and Republicans alike want to enact," she added.

Tester offered a similarly guarded analysis in his own statement Tuesday afternoon.

"Today is the first time the Chairman has shared the bill text with me. Politics aside, I will look at the policy and see if it works, but this process has been disappointing thus far," he said.

Option 3: The committee vote proceeds along party lines.

While there's still time for a deal to be struck, analysts said there's a decent chance the legislation ultimately passes the committee by a party-line vote.

"Unless there are some meaningful changes, the sheer breadth of it gives political cover for Democrats to stick together," said Edward Mills, a policy analyst at FBR Capital Markets. "What you'll probably get out of the markup next week is a lot of qualified no-votes on the Democratic side."

That would make winning a floor vote on the bill much harder. But Shelby does have an ace up his sleeve—the ability to use the appropriations process if necessary to pass certain provisions. Such a maneuver would spark a partisan clash later this year, but Shelby could make it work, potentially adding measures to a must-pass spending bill. The threat of such a move could force at least some Democrats to deal.

Additionally, Mills noted that Democrats will face increasing pressure to offer specific proposals of their own, particularly when it comes to helping community banks. Even if Democrats stand united against the Shelby bill, observers will be watching to see if lawmakers offer any amendments or a substitute bill as part of the process.

"There can be some criticism for having the breadth that the bill does, but as I look at it, really the onus is going to be on Senate Democrats to have a counteroffer," he said. "That's where Shelby is trying to force the issue."

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