WASHINGTON — Despite strong rhetoric from both sides that legislative action is needed to help community banks, Republicans and Democrats on the Senate Banking Committee remain divided in their approaches ahead of a panel vote Thursday.

Chairman Richard Shelby, R-Ala., introduced broad legislation this month designed to reduce the burdens on small and regional banks while also making reforms to the insurance industry, the Federal Reserve and the Financial Stability Oversight Council. But negotiations with Sen. Sherrod Brown, D-Ohio, the committee's ranking member, have been at a standstill for months, with Democrats now uniting around a much more limited substitute bill that will also be considered at the vote.

"Shelby has taken what some might call the most expansive view and Democrats have taken the most narrow approach — and now people are going to try to figure out where in between those two is a compromise possible," said Brian Gardner, an analyst at Keefe, Bruyette & Woods.

The vote is expected to go along party lines, with all 12 GOP members backing Shelby's plan and the 10 Democratic members backing the substitute. But negotiations are likely to continue behind closed doors after that.

Below we offer three key insights into what to watch on Thursday — beyond the vote counts — and what it means for regulatory reform this year:

1. Comments by moderate Democrats

Democrats are expected to stand behind their alternative regulatory relief bill on Thursday, but those watching the markup will be looking to see how panel members, particularly the moderates, position themselves for future negotiations. Shelby's bill has very little chance of becoming law, particularly through regular order, without at least some bipartisan support.

Observers of all stripes are "going to be parsing every word uttered by the Democrats, especially the moderates," said Gardner.

Analysts said one key person to watch could be Sen. Jon Tester, D-Mont., who has long favored regulatory relief for smaller banks, but has taken on new duties leading the Democratic Senatorial Campaign Committee ahead of the 2016 election, which could complicate his role.

"I'm looking at Sen. Tester as an indication of broader moderate thinking," said Isaac Boltansky, an analyst at Compass Point Research & Trading.

Meanwhile, Sen. Heidi Heitkamp, D-N.D., has been a "vocal advocate for some of the clearly bipartisan elements of this bill, including the privacy notices measure and the supervision timelines for smaller banks," Boltansky added. "There's going to have to be a decision made as to whether to proceed with a compromise agreement in order to advance some of these priorities or let the whole effort sink."

Both the Shelby bill and the Democratic alternative include provisions to stop the mailing of annual privacy notices unless the disclosures change and to extend annual exams for healthy community banks to 18 months.

Observers will also be watching Sen. Joe Donnelly, D-Ind., who is new to the panel, to see how aggressively he will push for community bank relief, and Sen. Mark Warner, D-Va., who came out with perhaps the strongest concerns among the moderates over Shelby's draft proposal when it was released earlier this month.

For right now, it appears likely Democrats will remain strongly unified during the course of the markup, with negotiations continuing throughout the summer behind the scenes.

"You're going to see, in my opinion, different posturing after the markup. Certainly you'll hear statements about people being disappointed with the process [on Thursday]. But the only path forward is Shelby's bill and they know that," said Mark Calabria, director of financial regulation studies at the Cato Institute.

Whether Brown, who is considered more progressive but has said he's committed to helping smaller financial institutions, leaves the door open for future discussions will also be carefully noted.

2. Signs of a compromise on the SIFI threshold

Crucially, the Democratic substitute focused on some of the least controversial, bipartisan bills that Congress has considered in recent years, leaving aside larger debates over a Dodd-Frank Act $50 billion threshold on enhanced prudential standards.

The Shelby bill would change the line above which banks are automatically subject to tougher capital standards and oversight to $500 billion, with the systemic importance of banks between $50 billion and $500 billion to be determined by regulators.

Looking ahead, one of the big questions that remains is whether lawmakers can broker a deal to raise the threshold in some way, an effort that even regulators have supported to some degree. For example, raising the threshold to $100 billion or $150 billion might win broader support than the $500 billion proposal. Any comments by Democrats on that issue will be key going forward.

"I'm looking to Sen. Tester as my gauge — I think he has more political capacity to broker a deal [on the SIFI threshold], but is also somewhat confined as chief fundraiser for Senate Dems next election cycle. He's got a number of competing priorities," said Boltansky.

Boltansky added that the absence of a SIFI threshold provision in the Democratic substitute doesn't necessarily suggest that all of the lawmakers oppose the idea. Instead, it likely means they want to focus on the bills with the least amount of political thorns in them.

"It underscores that this is meant as a rhetorical tool rather than as a legislative proposal," he said.

3. What amendments are offered

How the amendments process plays out will also be worth watching on Thursday — especially on the Republican side of the aisle.

"If this is something that goes pretty cleanly — there's a vote on the substitute and then Shelby's bill and there's not a ton of amendments — that to me is, 'OK, we're getting through this and getting on to the next step, which is the floor,'" said Calabria.

Democrats are not planning to offer any additional amendments beyond the substitute bill, according to a spokesman for Brown. But several GOP lawmakers, including Shelby, are expected to offer more than a dozen additional proposals.

Among those, Sen. David Vitter, R-La., is reportedly planning to introduce several amendments, including a provision that would require banks over $500 billion of assets to hold equity capital equal to at least 10% of assets, a measure that would include off-balance sheet derivatives. Another amendment would restrict the Fed's emergency lending authority, a bill he recently introduced with Sen. Elizabeth Warren, D-Mass.

If Democrats hold strong against the GOP amendments, Republicans must vote together for the measures to be successful.

"I'm going to be watching to see how willing Republicans are to entertain other Republican amendments," said Gardner.

Sen. Pat Toomey, R-Penn., also plans to file a handful of amendments, including one to repeal Dodd-Frank's orderly liquidation authority for troubled institutions and another to increase the threshold for Consumer Financial Protection Bureau examinations from $10 billion to $50 billion. A third would allow Fannie Mae and Freddie Mac to build capital, reversing an earlier Treasury Department agreement that sweeps all earnings to the government and ratchets capital levels down over time. Sen. Mike Crapo, R-Idaho, meanwhile, is expected to offer a provision that would bar federal banking and credit union regulators from participating in Operation Choke Point.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.