The Bank of Canada says the still-uncertain fallout from the steep drop in oil prices has left the country's financial system more vulnerable to any significant economic shocks to employment and incomes.
In its latest financial system review, the central bank says the oil slump on its own is unlikely to set off considerable systemic stress and the probability of a severe recession remains low.
But it warns a weak spot made worse by cheaper crude has put the system more at risk to any event that would lead to widespread job losses and falling incomes.
The bank says in its semi-annual review that the consequences would reduce the ability of Canadians to service their rising debt loads and could set off a widespread housing-price correction.
The central bank lists the country's climbing level of household debt and its persistently overvalued real estate market as key vulnerabilities in the financial system.
The risk of a widespread correction in house prices has "increased marginally" since the last report in December, the bank said, while stressing that the possibility of that remains remote. The bank cites housing as an "elevated" risk which means it would have a potentially severe impact, but low probability.
The central bank, however, also says financial reforms underway in Canada and abroad have put the Canadian system on better footing to absorb economic shocks.
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