June 21, 2007 (LPAC)--Bank of England Governor Mervyn King warned about the risks posed to the entire financial system by "collateralised debt obligations (CDO's)," in a speech at the Mansion House -- the official residence of the Lord Mayor of the City of London -- last night. King said that bankers are now telling him that they "cannot recall a time when credit was more easily available." "Exotic instruments" such as CDO's, are creating great risk. "New and ever more complex financial instruments create different risks," King said. "Some of the important risks that could affect all instruments - from terrorist attacks, invasion of computer systems, or even the consequences of a flu pandemic - are almost impossible to quantify, and past experience offers little guide. The risk of the entire return being wiped out can be much greater than on simpler instruments. Higher returns come at the expense of higher risk. Be cautious about how much you borrow is not a bad maxim for each and every one of us here tonight."

Former Financial Services Administrator chairman Sir Howard Davies has called CDO's "toxic waste." Meanwhile, the Bank for International Settlements, reported that sales of CDO's hit a record $251bn (£126bn) in the first quarter of the year alone.