Dan Baird

Dan Baird, chief executive of Capital Funding Group.

When the financial crisis hit in 2008, banks were a huge part of why the economy crashed so hard. After the dotcom revolution and subsequent prosperity that was the early 2000s, banks adopted a “too big to fail” notion; unfortunately, big banks were so busy soaring high that they forgot to pay attention to their rotting foundations.

Post financial crisis, enter the Dodd Frank Act. Designed to crush the notion that a financial institution can ever be “too big to fail,” Dodd Frank introduced hundreds of strict new regulations to be rolled out slowly over a few years. Big banks and financial institutions are implementing the rules with caution, which Kenneth Jacobs of Lazard says may mean fewer big deals in the coming year.

“There’s a real reluctance from the regulators to let the ‘too big to fail’ get bigger,” Jacobs said in February after Lazard announced a strong fourth quarter, according to Financial Times. “I don’t think we’re going to see high-level activity.”

Kenneth Jacobs

Kenneth Jacobs, Lazard’s CEO.

There may be a slowdown in big bank deals, but Dodd Frank could be potentially devastating to small banks, however. Kenneth Jacobs says it’s likely that there will be a variety of small and mid-sized acquisitions, mergers, and deals, causing an uptick in overall activity.

Because the regulations, rules, and requirements of Dodd Frank don’t scale based on the size of the financial institution, small institutions are finding that they simply don’t have the ability to cope with and implement the new rules. On the other hand, big banks have been able to hire on new employees and teams specifically to deal with Dodd Frank.

“When they created ‘too big to fail,’ they also created ‘too small to succeed,’” said Dan Baird, chief executive of Capital Funding Group Inc., according to the Washington Post. Banks that are too small to deal with Dodd Frank changes are more often being forced to close their doors or merge. Big banks may not be getting any bigger for the moment, but the more small banks merge, the less diverse and competitive the market becomes.