Cyril Roux’s eyes light up when his in-house press handler says the tea and coffee are on their way.
“This is a cold room,” he says with a knowing grin. “The floor is very odd. It’s not the same temperature in various parts of this floor. The governor’s [Patrick Honohan] office is very cold. My office is warmer.”
We're sitting in a meeting room on the seventh floor of the Central Bank of Ireland's head office on Dame Street in the heart of Dublin.
In the distance, you can see the shell of was once earmarked as a new headquarters for Anglo Ireland Bank, which is now ironically set to become home to the regulator from 2016. Hopefully, the temperature will be better regulated in its new home.
The Frenchman took his role as deputy governor and head of financial regulation at the Central Bank of Ireland on October 1st and is settling in to life in Dublin following his move from Paris.
“I love being in Dublin,” he says. “It’s a very enjoyable city. It’s by the sea with fresh air.”
How does Dublin compare culturally to Paris? “I’ve been to the theatre a number of times and to the National Concert Hall. It was great.”
He acknowledges though that “there are less international classical artists touring in Dublin than in Paris”.
Roux is the new sheriff in town, picking up the baton left behind by Englishman Matthew Elderfield as the Central Bank's enforcer of financial regulation following years of light touch oversight that resulted in the probably the worst property and banking crash the world has ever witnessed.
Roux has a busy agenda. What’s the top item?
“The top item is the repair of the Irish banking system,” he says matter of factly without any elaboration.
Next question, please.
It was a short answer, the result of nervousness at conducting his first media interview since taking on the role, and in a language that is not his mother tongue.
When asked to elaborate, Roux says: “Repair started a few years ago. It is gaining momentum but it is a slow process.”
It’s about getting to a “place where we have a thriving, competitive banking sector where banks are free of the crippling legacy issues. It will take several more years to get to that end state”.
By this stage Roux has had a few sips of tea from the elegant china cups and is clearly warming up, in more ways than one. He cites fellow EU member state Latvia as an example of what we might expect.
Latvia’s economy and property sector also had a mighty thud post 2008.
“In the case of Latvia, over the last five years, they have had strong economic growth and they were just able to get their non-performing loans down from 20 per cent to 9 per cent. That has taken five years of strong growth.
“Latvia is a different country, they have different books, different portfolios, different loans, but it gives a sense of the fact that it is a medium term issue.”
Where is Ireland on the recovery scale?
Roux doesn’t commit to a timeframe but he cites recent data on mortgage arrears, which showed a decline for the first time at the end of last year, albeit marginally.
“That’s a good yardstick, I think.”
This is another big year for Irish banks, which will once again have their financial strength put under the microscope as part of a comprehensive assessment exercise carried out by the ECB.
This is a euro zone-wide exercise in advance of the Frankfurt-based Single Supervisory Mechanism (SSM) commencing its oversight of banking in the currency area.
The SSM will directly supervise 128 of the biggest financial institutions in the euro zone, including AIB, Bank of Ireland, Ulster Bank, Permanent TSB and Merrill Lynch in Ireland.
The process of conducting asset quality reviews began in March and the parameters for the full-blown stress tests will be agreed this month. The stress tests are due to begin around May, with the results of all this due by the end of October in time for the SSM to begin its work on November 4th.
Will the Irish banks need more capital?
“We don’t expect that they will. It will depend on the stress test itself. We think in general that our banks are sufficiently capitalised,” Roux says.
However, he accepts that a lot depends on the parameters of the stress tests.
“You can always run very severe tests and go to breaking point if you turn up the notch enough. It’s too early to tell. We don’t have the parameters. Once we have them, we can’t guess instantly what it means and what the effect will be. The answer will take time to emerge through calculations from the inputs. It won’t be instant. You need several months to run them [the stress tests].”
He is somewhat puzzled by economist Morgan Kelly’s recent claims that the European Central Bank is going to get tough with Irish banks over SME arrears and put a lot of small companies here out of business.
“I fail to see the connection,” he says, once again briefly.
Roux says the ECB has made clear its desire to ensure an adequate flow of finance for SMEs across the euro zone. “The ECB is not trying in any way to trip up the SMEs in Ireland or elsewhere.”
SME arrears are a “significant problem” for Irish banks, he accepts, stating that the aggregate figure is somewhere in the tens of billions of euro. “It’s a drag on the Irish economy and on Irish banks, and it will take time to resolve.”
Tracker mortgages are another drag, particularly for state-owned AIB and Permanent TSB. There has been much chatter of an external solution being found to what is a major funding drag on the banks, especially with the ECB’s headline rate being just 0.25 per cent.
“This hasn’t progressed to date,” he says. “There will be no exemption or special treatment for the Irish banks. On the supervisory side, the challenges of Irish banks include tracker mortgages. Other banks in other parts of the euro zone have their own challenges.”
He said there is no parallel exercise running alongside the ECB’s comprehensive assessment that is taking place this year.
“There’s no parallel discussions on tracker mortgages or on other issues.”
Where does Roux stand on a third banking force? It was mooted recently by the Minister for Finance Michael Noonan, while Royal Bank of Scotland has hired Morgan Stanley to identify potential consolidation opportunities here for Ulster Bank, which is taken as a signal that it might be willing to participate.
“Our view is that we need a competitive banking market. We don’t need a plethora of many banks. We probably don’t need more than a handful of banks as long as they are free of their legacy issues. That’s our view.”
By a handful, he means five or six. We currently have AIB, Bank of Ireland, Ulster Bank, Permanent TSB and KBC Bank Ireland.
Aren’t we already sorted?
“I’m not sure we have a handful of retail banks that are of scale,” he says, alluding to the fact that Permanent TSB does not target SMEs, while KBC is only now beginning to offer a full suite of personal banking products.
“I think it would be a good to get to a landscape where we have several banks, and more than two, that would offer a suite of retail and SME banking.”
He declines to comment on what exact shape a third banking force might take or who might participate.
“We are not in the business of designing the banking landscape. We welcome applications for a licence or mergers or a change of ownership, and we examine them on the merits. There are so many ways of doing any of these.
“What will count for us will be the financial solidity, the systems, the operational readiness, the financial strength and ability to withstand stress in adverse economic circumstances. They’re the kinds of things we will do to grant a licence or authorisation.”
He also demurs from commenting on our prospects for a retrospective recapitalisation of the Irish banks to ease the €64 billion cost of the banking bailout, something that Taoiseach Enda Kenny says has been promised to us by our EU partners.“It’s a matter for governments [to decide],” he says.
Many senior members of the financial community here argue that the burden of regulation is now be too great and is a reason why so many institutions in the IFSC are handing back their licences. Roux's eyebrows arch at the suggestion.
“It will be interesting to hear their comments in a year’s time once the SSM takes over. We’ve been doing some enforcement for breaches of regulations. Action has been taken both on the main banks and the IFSC banks. We make no distinction.
"I wonder what these banks would say were our fines or settlements to be on a par with what was done in other countries not far from our borders [he means the UK]. When you look at the amount of fines by the banking industry in the West . . . I read in the Financial Times that it's $100 billion since the crisis."
In Ireland, the regulator has collected just over €7 million in fines since 2010. “Banks should not expect that going to SSM they will benefit from lighter supervision,” he warns.
Before moving to Ireland, Roux had been first deputy secretary general of the French resolution and supervisory authority ACPR since March 2010.
Prior to that, he was the deputy secretary general of the French insurance supervisory authority ACAM, and he also spent 10 years at AXA in a variety of posts.
Why did he choose to come to Ireland?
“I was attracted to the job and the challenges of being in charge of financial supervision in Ireland. It was an interesting job.”
Roux applied for the post here in the spring of last year. His former boss at the ACPR, Danièle Nouy, was subsequently appointed as the first head of the SSM.
Roux could have been a contender for her job. “Certainly. I was a first deputy, so yes. [But] it was not available at the time I applied.”
Any regrets about the path he chose? “No.”
Next question. When did he decide he wanted to be a financial regulator?
“Very early. I went to become an insurance supervisor at 21.”
Roux has a PhD in economics from Harvard and is a graduate of École Polytechnique in France. He earned a degree in literature from the University of Paris – Sorbonne.
He has a €310,000 annual salary at the Central Bank and a five-year contract. Elderfield left for a senior role at Lloyds Banking Group after three and a half years of his contract. Roux says he will be “here” for the five years.
He might not even return to France when his time here ends.
"I'm part of the euro systems of central banks, so I could just as well go to the ECB or to other parts of the international supervisory world."
CV: Cyril Roux
Name: Cyril Roux
Job: Deputy governor and head of financial regulation at Central Bank of Ireland
Lives: Ballsbridge, Dublin 4
Hobbies: Jogging, reading and chess
Something that we might expect: Likes to travel. "I've been to Japan 17 times."
Something that might surprise: He spent a week in the Antarctica five years ago. "You can only visit in the summer, which is winter for us. It's no colder than going skiing. You are on a boat and several times a day you disembark. You climb volcanoes, you see wildlife, you visit discarded scientific stations or whaling factories. You see lots of penguins and seals and birds, and you do loads of mountaineering. I would recommend it."