work remains to be done on integrating the risk appetite framework into management, as a key instrument of risk control. for example, at many banks the involvement of the risks function in the limit - setting process is still poor and lacking in ambition. in risk management, structured decision processes are needed, with incentive arrangements that are conducive to sustainable risk - related decisions. how these decisions materialise, which in the literature is known as “ risk culture ”, is particular to each bank and the responsibility of each one. supervisors observe and assess but, ultimately, this is one of the idiosyncratic aspects of banks ’ dna. in short, governance structures should be capable of measuring, heading off and analysing current risks and those that are arising. while there are no strong signs of any easing, for activity as a whole, in lending conditions and of aggressive pricing that might suggest that risk is not sufficiently reflected, banks must be careful to retain a suitable profitability / risk trade - off that is sustainable over the cycle in all business segments. an individualised reflection, adapted to the characteristics of each institution. i shall conclude with a brief but nevertheless important reference. in addition to being comprehensive and strategic, reflection on the business model should also be individualised, i. e. adapted to the idiosyncratic characteristics of each institution. indeed, the findings of the ssm thematic review of profitability and business models show that there is no one single approach and that, even among those banks with better profitability results, there are differences in strategies. some pursue strategies geared to obtaining high income, which counter relatively high costs. others place an emphasis on low costs that are compatible with relatively low income. and others strike a balance between a medium income - generating capacity and medium or low - level costs. these differences in strategies are reflected in different action plans, some aimed at growth in loans or commissions, others at streamlining costs through various means, including digitalisation or externalisation. the options are varied and should be adapted to the actual circumstances of each bank. conclusions in conclusion, my address has focused on the importance of reflecting on the banking business model as a cornerstone for being able to achieve a sustainable level of profitability over time. i have stressed certain elements central to this reflection, such as detailed knowledge of the reality of the business, a price - setting policy that reflects the risk and cost of each product, a strategy geared to strengthening capital and reducing non - productive assets, sound

the provision. both documents, the guidelines and the addendum, clearly demonstrate the attention the supervisor has been paying to credit risk in general, and to non - performing exposures in particular, and they represent the benchmark supervisory tool in the supervisory dialogue with banks. in july 2018, the ecb announced that, along with the foregoing, and with the aim of achieving similar coverage of the flows and stock of non - performing loans, the setting of bank - specific supervisory expectations in respect of prudential provisioning levels for the stock of non - performing loans would also form part of the supervisory dialogue. the better prepared institutions are for this dialogue, the more fluid it will be. before addressing the last of the key strategic aspects i wish to talk about today, namely governance, i believe it should be said that any strategic reflection should also include appropriate liquidity planning. this should take into account those elements that may most affect it, with particular attention to monetary policy implementation decisions. to conclude these considerations on strategic reflection by banks, i shall refer to governance and risk management. the crucial element for being able to properly manage and attain profitable business models over time is to have suitable governance structures. governance structures shape the decision framework on risks. they are thus determinants of how a bank ’ s risk profile develops and, ultimately, of its medium and long - term sustainability. they are a necessary and basic element without which success in any project cannot be expected. as many of you know, governance is an area in which i have been working for some time and with which i am very familiar. let me recall for you the areas of improvement banks still have to tackle and which decisively influence the business model and future challenges. admittedly, considerable progress has been made in recent years in relation to governance. but i would like to highlight two areas where we must continue working : i ) the functioning of boards ; and ii ) the implementation of risk appetite frameworks. on boards there is scope for improvement in terms of independence, dedication and succession planning. many institutions have carried out self - assessments of how their board works, but more still needs to be done as regards the time dedicated to preparing meetings and board oversight of control functions. 6 / 8 the oversight of managers and, in particular, internal control functions must be strengthened, especially in risks and compliance. and let us not overlook the quality of data and information on risks that are pivotal to determining strategy and decision - making. in addition,