The thermodynamic theory underlying black hole processes is developed in detail and applied to model systems. It is found that Kerr-Newman black holes undergo a phase transition at a = 0.68M or Q = 0.86M, where the heat capacity has an infinite discontinuity. Above the transition values the specific heat is positive, permitting isothermal equilibrium with a surrounding heat bath. Simple processes and stability criteria for various black hole situations are investigated. The limits for entropically favoured black hole formation are found. The Nernst conditions for the third law of thermodynamics are not satisfied fully for black holes. There is no obvious thermodynamic reason why a black hole may not be cooled down below absolute zero and converted into a naked singularity. Quantum energy-momentum tensor calculations for uncharged black holes are extended to the Reissner-Nordstrom case, and found to be fully consistent with the thermodynamic picture for Q < M. For Q < M the model predicts that 'naked' collapse also produces radiation, with such intensity that the collapsing matter is entirely evaporated away before a naked singularity can form.