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R I S K A S S E S S M E N T O F T H E E U R O P E A N B A N K I N G S Y S T E M

9

process, the respective influence in banks’

business models and risk appetite and the

dynamics of asset quality. Chapter 3 consid-

ers in more detail the liability side, present-

ing the evolution of funding conditions. It also

discusses the development of asset encum-

brance and highlights remaining structural

fragilities and challenges. Chapter 4 provides

an overview of the banks’ capital positions

and respective trends, taking into account

the banks’ efforts to progress towards strong

capital buffers. Chapter 5 describes banks’

income and profitability and the significant

headwinds during 2014 and beginning of 2015

and future evolution. Chapter 6 touches on

aspects of banks’ operational and IT risks,

consumer issues and reputational concerns,

business conduct, effective and potential fi-

nancial costs stemming frommis‑selling and

other unfair past business practices. Finally,

Chapter 7 presents policy implications and

possible measures to address the prudential

issues mentioned in the previous chapters.