Elevated levels of household debt, regional imbalances in the Canadian housing market and the increasing levels of risks investors are taking in search of yield are the three key vulnerabilities facing the domestic financial system, says the Bank of Canada (BoC).

“One or several vulnerabilities could interact with a trigger event, which could then cause a risk to materialize,” reported the BoC in its Financial System Review released on Thursday.

The BoC identified several such risks that could be triggered, the most important of which continues to be a broad-based decline in Canadian employment and incomes that compromises the ability of individuals to service their debt, which could result in a broadly based drop in house prices.

“The probability of this risk materializing is low, but if it were to materialize, the impact on the economy and the financial system would be severe,” said the BoC, which nevertheless continued to designate the risk as elevated in terms of impact.

The lower price of oil could have a part to play in such a scenario materializing.

“While the sharp drop in the price of oil by itself is unlikely to trigger significant systemic stress, low oil prices have increased the vulnerability of the system to a large, adverse shock to employment and incomes,” said the BoC.

Another key risk would be a sharp increase in interest rates globally and in Canada.

“Market overreactions to surprise changes in monetary policy in the U.S. or Europe could result in a rapid risk in global risk premiums, with possible spillovers to domestic financing costs and asset prices,” the BoC’s report said.

The BoC designated an economic shock in China or another key emerging economy as a medium probability risk to the domestic economy — higher than an increase in unemployment or a rise in interest rates.

Lastly, the BoC identified financial stress in the eurozone, which could lead to global financial market volatility, as another risk area. Although the bank’s report said that the likelihood of the risk materializing had fallen since December, the likelihood of Greece defaulting on its debt had increased since then — although the BoC believed that the effect was less likely to cause severe financial stress in the eurozone.

Despite the risks, the BoC expects the global economy to experience stronger growth through the rest of 2015 and into next year, spurred by low interest rates, low oil prices and the gradual lessening of economic drag resulting from deleveraging since the last financial crisis.

As the global economy recovered, the BoC expected monetary policy “to start to normalize in advanced economies,” which could lead to financial and economic turbulence as markets adjusted to rising interest rates.