they originate. this sets the stage for assessing risks – events that, if they occurred, would threaten the ability of the financial system to perform its core functions. such risks materialize when trigger events interact with vulnerabilities to cause stress in our financial system. this added depth allows a more complete understanding of our financial stability concerns. one can see that these diverse risks cannot literally be summed to estimate an overall level of risk. nevertheless, after weighing the risks to financial stability through our improved framework and applying judgment, our level of comfort as policy - makers remains similar to what it was six months ago. the clear separation of cause and effect – vulnerabilities and risks – allows a more accurate weighing of the risks to economic and financial stability. it allows us to consider both in an integrated fashion as we deliberate policy. that ’ s why our assessment of the risks to the financial system is so relevant. and that ’ s why we ’ re here with you now. before carolyn and i take your questions, let me note the highlights from today ’ s fsr. bis central bankers ’ speeches the top two vulnerabilities are related to the household sector. the first is the imbalances in canada ’ s housing market. we still anticipate a soft landing. however, stretched valuations and some signs of overbuilding would expose the financial system to a sharp correction in house prices – which is a risk we ’ ve identified. the second is the elevated level of indebtedness among canadian households. this leaves households vulnerable to an unemployment shock or a sharp rise in interest rates. the third vulnerability is our exposure to sizable potential external shocks. an example is the significance of global commodity prices to our economy and financial system. the risks are viewed in the context of these vulnerabilities. the most important domestic risk is, as mentioned, a sharp correction in house prices. the probability of this risk materializing is low, given the expected strengthening of the global and canadian economic recoveries. however, if it were to happen, its impact on the economy and financial system would be severe. we also focus on three other key risks : a sharp increase in global long - term interest rates ; stress emanating from china and other emerging markets ; and serious financial stress from the euro area. before i open the floor to you, it is important to note that canada ’ s financial system remains robust. it will continue to benefit from enhanced policy measures as the g - 20

for the 29 june eu summit statement, see : http : / / www. consilium. europa. eu / uedocs / cms _ data / docs / pressdata / en / ec / 131359. pdf. for information on the outright monetary transactions programme, see : http : / / www. ecb. int / press / pr / date / 2012 / html / pr120906 _ 1. en. html. bis central bankers ’ speeches government ’ s fiscal position and greatly enhance its ability to regain full access to the markets. 5. conclusions ireland has undergone a disastrous boom - bust cycle in the last the decade. following the burst of the bubble, the irish economy experienced an exceptionally severe contraction and massive bank losses. lower revenues and large capital injections in the banking system have led the debt - to - gdp ratio to rise from 25 per cent to about 120 per cent since 2007. in response to the crisis, the irish government has taken a large number of measures to reform the financial sector, strengthen public finances and return the economy to growth. the first of these measures were adopted already in 2008. since 2010 they have been part of an assistance programme agreed with our european partners and the imf. in this period, the irish authorities have delivered on all of their commitments and made good progress on restructuring the economy. while the economic freefall has now stopped, economic performance has been weaker than anticipated when the programme was agreed, largely because the external environment has been much more challenging than expected. overall, economic conditions are still fragile. with the ending of the programme later this year, the irish government will be relying again on funding from the private debt markets. the stock of public debt is very large, the level of mortgage arrears is still high and banks are not yet profitable. the safety margin is therefore small. improving debt sustainability would greatly enhance the prospects of a successful exit. bis central bankers ’ speeches