London - The head of Britain's financial watchdog, the Financial Services Authority (FSA), Thursday demanded profound changes to the "seriously deficient" regulatory system if a repeat of the current crisis in the banking sector is to be avoided.

Adair turner, FSA chairman, recommended that banks should be forced to build up capital during good economic periods to enable them to deal more easily with an economic downturn.

His remarks, in a BBC interview, came just days after the government approved a massive scheme to insure banks against so- called toxic debt, which according to estimates could total 200 billion pounds (274 billion dollars).

"We cannot predict what the losses will be," Turner said. However, the banking system would not collapse "in the sense that the authorities will make sure it will not."

Turner said bankers, regulators, central banks, finance ministers and academics across the world shared the blame for failing to identify the risks which had been building in the financial system for a number of years.

"Central banks and regulators between them need to... identify the combination of measures which can take away the punchbowl before the party gets out of hand," he said.

His remarks coincided with confirmation Thursday that bonuses pledged to most of the 4,500 staff of Northern Rock, the British lender nationalised a year ago, would be paid out.

The 10-per-cent bonuses, which were linked by the government to performance goals, amount to a total of 9 million pounds.

Meanwhile, figures out Thursday showed that British car production fell by 47.5 per cent in December - a month when many plants shut over the Christmas holiday.

For the whole of 2008, production was down by 5.7 per cent compared with 2007, figures from the Society of Motor Manufacturers and Traders showed.

On Friday, official figures are expected to confirm that Britain is technically in recession, after a growth decline in the last two quarters of
2008.

Meanwhile, on the currency markets, the British pound Thursday hovered around the 1.37-dollar mark, after falling to 1.36 dollars Wednesday, its lowest level against the US currency since 1985. (dpa)