London  - The head of Britain's financial watchdog has said he would be prepared to back the introduction of a new tax on financial transactions in order to curb excessive bonus payments in the City of London.

Adair Turner, chairman of the Financial Services Authority (FSA), said the financial services sector in the City had grown "beyond a socially reasonable size."

He said such a tax on financial transactions would cut banks' profits and thereby reduce the funds available for bonuses. It would be a "nice sensible revenue source for funding public goods."

But Turner, in an interview with Prospect magazine, made clear that he was "not setting out a new policy," which was, he added, a matter for the government.

Turner conceded that it would be "very difficult" to obtain global agreement on such a tax.

Alistair Darling, the chancellor of the exchequer, has not ruled out future legal restrictions on excessive bonus payments, but said legislation would only be introduced after an independent review of the so-called bonus culture.

The British Bankers' Association (BBA) immediately rejected Turner's proposal, expressing fears that Britain's position as the "top centre in the world for global banking" could be jeopardized.

"If we introduce the wrong kind of regulation or the wrong kind of taxes we could so easily lose that position by driving business abroad," said Brian Capon, spokesman for the BBA.(dpa)