Jean-Claude Trichet has warned that rapid growth of structured financial products and derivatives make it increasingly difficult to weigh up risk in the financial system, writes Gillian Tett in Davos. Speaking at the weekend at the World Economic Forum in Davos, the president of the European Central Bank said that investors needed to prepare for a "repricing" of some assets because of potentially "unstable" conditions. "There is now such creativity of new and very sophisticated financial instruments - that we don't know fully where the risks are located. We are trying to understand what is going on but it is a big, big challenge." However, many observers argued that the growth of the $450,000bn (£230,000bn) derivatives sector had helped reduce volatility in the markets and made the system more resilient by spreading credit risk.

Other officials fear these instruments may raise leverage and risk-taking to dangerous levels and keep the cost of borrowing artificially low, potentially increasing the chance of financial crises.