Retail banking head Dave McKay to take over as CEO of RBC By naming Dave McKay as its new chief executive officer, Royal Bank of Canada is telling investors it is sticking to the script. After dodging the worst of the financial crisis, Canada's largest lender took pains to bolster its balance sheet, shedding risky assets and parting ways with its troublesome U.S. bank. Its management seemed focused on a simple mantra - safer, more stable earnings - and the appointment of Mr. McKay, 50, to replace Gordon Nixon next year is an indication that strategy will continue. Next August, he will bring to the CEO's office the expertise he honed while running the relatively stable personal and commercial banking arm of Canada's biggest bank. He will do so at a time when the banking industry faces a host of new challenges - from slowing loan growth to a technological shakeup that is causing retail customers to adopt new ways of getting access to financial services. "The way we pay, the way we think about banking, how we use traditional channels versus new, up-and-coming non-traditional channels, is all changing," Mr. McKay said in an interview. RBC isn't alone in its lower-risk approach. Canadian banks have de-risked en masse, handing more power to their chief risk officers, and diverting capital to safer business lines, such as wealth management. Yet RBC has taken extra steps to signal its steadfastness. After rating agency Moody's Investors Service downgraded the bank in 2012, management made it a point to re-emphasize that it would limit earnings from capital markets at 25 per cent of its total bottom line. Mr. McKay, a native Montrealer, has done a tour of duty inside the bank, including running its credit card arm and a stint in risk management - the latter being a prerequisite for any bank CEO in this era. Those who speculated on RBC's succession plans had long viewed him as the front-runner to replace Mr. Nixon, the former capital markets chief who has been CEO since 2001. With the transition timeline etched out, Mr. Nixon can exit on the back of record annual earnings of $8.4-billion, while Mr. McKay can start tackling a tough new landscape. Domestic loan growth is slowing, and technology is disrupting the banking experience. Banks are traditionally involved in three lines of business: lending money, storing money and moving money. The latter is in the midst of a major upheaval, Mr. McKay said. It's the companies like Apple and Amazon that are causing consumers to think differently about commerce in general and therefore impacting the world of banking. When Mr. McKay inherited the Canadian banking business in 2008, the unit was already in good standing. His predecessor, Jim Westlake, had re-established the unit's dominance, opening new branches and expanding the physical distribution network. But it is hard to stay No. 1, especially with a formidable rival such as Toronto-Dominion Bank nipping at RBC's heels. Mr. McKay has "really taken his line of business and separated it from peers," National Bank Financial analyst Peter Routledge said. I don't think there is a personal and commercial bank in Canada with as strong a distribution network. RBC didn't achieve this the easy way. To grow its lending book, Mr. McKay's team didn't rely on mortgage brokers, who bring in homeowners for a fee. RBC more or less built out its mortgage portfolio on its own, and ultimately reaped the benefits. Because the bank didn't pay brokers a fee for each new mortgage they brought in, RBC was able to make more money per loan. But there are signs that lending in general is beginning to cool. RBC's total loan growth in Canadian banking was just 1 per cent quarter over quarter in the latest results. Canadian banking will slow down, and capital markets will continue to grow, so I think his first strategic challenge is: what do we do about that? Mr. Routledge said of Mr. McKay. Despite his history, Mr. McKay is unlikely to neglect capital markets - and the latest earnings demonstrate why he simply can't. RBC has built a large investment banking business in Canada, the U.S. and Britain, and has won high-profile mandates, such as advising on Loblaw Co. Ltd."s acquisition of Shoppers Drug Mart and Verizon Communication's record setting $49-billion bond issue this summer. Yet RBC has made it a priority to stick to these bread and butter capital markets operations, rather than put a lot of its capital at risk with trading. Outside the bank, Mr. McKay is already well known. In Ottawa, he has a "very healthy dialogue with the [federal finance] minister and his office," he said, and is heavily involved in the negotiations around credit card fees that Mr. Flaherty is shepherding. Mr. McKay is also immersed in the financial community, having served on the board of Visa Inc. and currently sitting on the board of the Hospital for Sick Children in Toronto, which is full of prominent Bay Streeters. He also swears that he takes time for his family, coaching hockey and basketball. Free time could be harder to come by with the new role - however, annual family vacations to Prince Edward Island are probably non-negotiable. For now, the CEO will not commit to any specific strategy, but RBC board director Edward Sonshine believes that will come with time. "I'm sure Dave McKay will be wonderful, but like every CEO it will take him a little while to find his feet, where he wants to take the bank," he said.