UPDATE 1-Australia watchdog sees stability key in bank deals

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MELBOURNE, Nov 21 (Reuters) - Australia's competition watchdog said financial stability had become a major factor in weighing up whether to allow banking takeovers to go ahead in light of the global credit crisis.

"It's made it far more complex for us," Australian Competition and Consumer Chairman Graeme Samuel told reporters on Friday.

The commission last month cleared Westpac Banking Corp's (WBC.AX) $9 billion takeover of St George Bank SGB.AX, Australia's biggest banking deal which put together the fourth- and fifth largest banks.

The deal had largely been cleared before the worst of the financial crisis hit.

"Now we're dealing with a whole new environment," Samuel said, after speaking at a business lunch.

The commission expects to rule in the next couple of weeks on the second-largest lender Commonwealth Bank of Australia's (CBA.AX) proposed A$2.1 billion acquisition of British bank HBOS's HBOS.L Australian unit, BankWest.

Samuel said the commission was working closely with the federal Treasury, the central bank and banking regulators to assess what the banking sector will look like, with or without the BankWest takeover going ahead.

"The future integrity and stability of the financial system is a consideration we have to take into account, because in certain circumstances, the stability or instability of that system can actually have its own impact on competition," he said.

"Now I'm not sure if anyone can look forward with a degree of certainty beyond a month or two months," he added.

Samuel declined to comment on whether the government's ban on mergers among the top four banks -- National Australia Bank (NAB.AX), Commonwealth Bank, Westpac and Australia and New Zealand Banking Group (ANZ.AX) -- remained relevant in light of the financial crisis.

While the crisis has spawned bank consolidation, collapses and even government takeovers of banks in the United States and Europe, Australia's Labor government has said it would stand firm on the "four pillars" policy.

The ACCC also on Friday set out new guidelines asking parties involved in mergers to notify in advance if the merged firm would control more than a 20 percent share in the relevant markets.

"The notification threshold is set at a level that reflects the ACCC's experience in determining which mergers are more likely to raise competition concerns and therefore require further investigation," the commission said. ($1=A$1.64) (Reporting by Sonali Paul and Denny Thomas; Editing by James Thornhill)