Warren Buffett, one of the world’s most storied investors, has issued a fresh warning that the complex derivatives lurking on banks' balance sheets are a “potential time bomb” that could explode in times of stress.

The Sage of Omaha told the annual meeting of his company Berkshire Hathaway that while he still believes in holding shares in financial firms such as Bank of America, the sector continues to build derivatives that could create “dangerous” jolts in value that would exacerbate a major shock.

“Some of these things get so complicated they’re very hard to evaluate... I know one that’s so mismarked it would blow your mind, and the auditors I don’t think are necessarily capable of holding that behaviour in check,” he said.

Emphasising a warning he gave last summer, when he described derivatives as “weapons of mass destruction,” Mr Buffett said a major event such as a cyber attack that shut down the financial markets would trigger “enormous gaps in things you thought might be protected by collateral”.

“I regard very large derivative positions as dangerous. We inherited a modest sized position at [Berkshire’s reinsurance vehicle] Gen Re in a benign market and we lost about $400m just trying to unwind it with no pressure on us whatsoever.”