The head of the FSA, Britain�??s top banking watchdog, supports the idea of new global taxes on financial transactions, warning that a �??swollen�?� financial sector paying excessive salaries has grown too big for society.

Adair Turner, chairman of the Financial Services Authority, said the debate on bankers�?? bonuses has become a �??populist diversion�?� and that more drastic measures may be needed to cut the financial sector down to size.

He also pointed out that the FSA should �??be very, very wary of seeing the competitiveness of London as a major aim�?�, claiming the city�??s financial sector has become a destabilising factor in the British economy.

His comments were made in an interview in Prospect magazine published on Thursday.

Lord Turner is worried about a return to �??business as usual�?� in the banking sector, suggesting that new taxes may be necessary to curb excessive profits and pay in the financial sector. He floated the idea that a �??Tobin tax�?� �?? named after the economist James Tobin �?? should be considered for financial transactions in the future.

�??If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit,�?� he said.

The FSA chairman also claims that parts of the financial services sector had grown �??beyond a socially reasonable size�?�, including derivatives and hedging and aspects of the asset management industry and equity trading.