Who'll take the reins from Harry Reid?

Sen. Harry Reid, D-Nevada, speaks during a press conference on Capitol Hill on March 17, 2015.
Joshua Roberts | Reuters
Sen. Harry Reid, D-Nevada, speaks during a press conference on Capitol Hill on March 17, 2015.

Harry Reid's decision to retire in 2016 does not come as a huge surprise, but it does shake up Democratic Senate leadership and complicate matters for the party's hopes of retaking the upper chamber next year.

Sources close to Reid began suggesting late last year that the 75-year-old senator was not staffing up in a way that would indicate another run. And contrary to some early reporting, Reid's brutal exercise band accident is said to have made the former boxer from Searchlight, Nevada, more likely to run not less, just to show people he could.

Republicans, who loathe Reid with an unrestrained passion, celebrated the news, sometimes in a less than dignified manner.

"On the verge of losing his own election and after losing the majority, Sen. Harry Reid has decided to hang up his rusty spurs," the National Republican Senatorial Committee said in a prepared statement. "Not only does Reid instantly become irrelevant and a lame duck, his retirement signals that there is no hope for the Democrats to regain control of the Senate."

Tell us how you really feel.

The GOP hates Reid because many feel that all he cared about in his final years as majority leader was protecting vulnerable incumbents from difficult votes while making it impossible for Republicans to even get votes on amendments or legislation that had significant bipartisan support.

Read More Surprise! Something positive from Congress

Democrats, of course, loved him for many of the same reasons as well as for his success in the first two years of the Obama administration in helping get health care and Wall Street reform passed and to the president's desk.

There could be a contested secret election to take over for Reid as leader in 2017 but the inside track belongs to Chuck Schumer of New York. He is currently third in leadership behind Dick Durbin of Illinois but is widely seen by insiders as a heavy favorite, especially given his successful run as DSCC chair from 2005 to 2009, a period that saw Democrats pick up 14 seats.

Schumer could have been the Banking Committee ranking member (and Wall Street wanted him to take it) but he passed on it, which many saw as an indication that he remained focused on becoming leader.

In addition to Durbin, Schumer could face a significant challenge from Washington Sen. Patty Murray, the Budget Committee chairwoman and a popular figure within the party. Elevating Murray could also help Democrats further enhance their advantage with women. But that may be slightly less of a factor going into a presidential cycle in which the party is likely to have a woman, Hillary Clinton, at the top of the ticket.

Said one insider on the Democratic leadership race: "It's all Schumer. Look at the numbers of Democratic senators who were elected in the 'Schumer class' when he was DSCC chair. He has been quietly (difficult for him) tending the garden, and his communications role in leadership has given him a very powerful tool to do so. There will be discussion of a race, but it is already over."

Read MoreSenate up next after House passes bold conservative budget

Schumer issued a statement on Friday morning praising Reid. "Harry is one of the best human beings I've ever met," Schumer said. "His character and fundamental decency are at the core of why he's been such a successful and beloved leader. He's so respected by our caucus for his strength, his legislative acumen, his honesty and his determination."

Some Democrats and activists on the left will push for the elevation of Elizabeth Warren of Massachusetts to the top leadership spot. But there is very little chance of that happening. Warren has not been in the Senate long enough and remains a highly polarizing figure who could significantly damage Democrats' ability to raise campaign money from Wall Street and big business in general. Warren is a huge asset to Democrats as a member of leadership capable of marshaling the passion of the progressive, anti-Wall Street movement. But she is not the kind of coalition-building operator likely to move to the top job.

Wall Street is not necessarily celebrating Schumer's likely ascension to the top slate in the Democratic Senate caucus, however. Many bankers and D.C. lobbyists feel like Schumer ignored them during the Dodd-Frank debate and has shifted to the left in recent years, tacking with the political winds. While they'd certainly rather have him than Warren, there is currently not a love on Wall Street for the likely soon-to-be-Democratic leader.

—Ben White is Politico's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet Politico Morning Money [politico.com/morningmoney]. Follow him on Twitter @morningmoneyben.